Up to 800,000 fixed loan contracts are expected to end this year as interest rates continue to rise, according to the Reserve Bank of Australia (RBA).
It is widely expected that the Reserve Bank will again lift interest rates when it meets next week, after the official consumer price index jumped to 7.8 per cent over the year to December
Appearing before a Senate committee looking at cost of living, the head of the economic analysis department at the RBA, Marion Kohler, defended rate rises.
"We understand that some people are finding the rise in interest rates difficult to manage and others will have to cut back on discretionary spending," she said.
"However, higher interest rates are necessary to ensure that the current period of higher inflation and cost-of-living pressures does not persist too long.
"As the governor has emphasised, the Reserve Bank Board is focused on returning inflation to target and establishing a more sustainable balance of demand and supply in the Australian economy."
Some economists have warned the economy could take a hit this year as many households on low fixed rates move to much higher variable loans.
Ms Kohler was asked if the RBA knew how many fixed loan contracts would end by December 2023.
"Around one third of the outstanding housing credit is fixed rate," she said.
"We think about half of that is due to roll off in the coming year."
Ms Kohler said it was "quite a difficult question" to answer about how many loans that percentage represents.
"The team is actually looking further into that, but you need to do a little bit of back-of-the-envelope calculations," she said.
"The number is somewhere in the high 800,000 that you would be looking at.
"But that is not 800,000 households necessarily — there are people who have more than one loan facility, they might have taken out a loan with different banks or you have a split or variable rate loan … but that is really a rough back-of-envelope calculation."
Households feeling the pinch
Several leading Australian charities have told the senate committee that they have noticed a significant increase in the number of people asking for help due to cost-of-living pressures.
The Salvation Army's Stuart Foster said the surge in demand was stretching groups like his.
"What we have been finding just recently is the level of people that we have to say 'no, we can't assist you at this point in time' … that is affecting our staff," he said.
"Both in responding but also in having to deal with the behaviours that brings on in the people that we see in our communities."
Foodbank chief executive Brianna Casey said 54 per cent of households that need help with meals at the moment had someone in paid work.
"A job is no longer a shield against the cost-of-living crisis," she said.
St Vincent De Paul Society chief executive Toby oConnor raised concerns about an increase in people relying on emergency relief, which is designed to support people experiencing financial distress or hardship.
"People are relying on it more and more due to the inadequacy of income support payments," he said.
"It used to help people with occasional extra costs.
"Now it's clear, emergency relief has become a necessary supplement to JobKeeper … it hides from parliament the real inadequacy of the income support program."
Charities that appeared before the committee, including the Salvation Army, St Vincent De Paul, Foodbank and Brotherhood of St Laurence have once again urged the government to lift welfare payments.
Inflation rate at its highest
Cost-of-living pressures are being felt across most households but general manager of policy and advocacy at the Salvation Army, Jennifer Kirkaldy, said the pain is worse for some.
"The rising cost of living is hurting all of us but it is not hurting us equally," she said.
"There is a very real difference between choosing to do a grocery shop instead of eating out and choosing to do a grocery shop instead of paying the rent or buying medication."
Mr oConnor said charities have noticed a reduction in donations because people have less spare cash.
"As more and more families are stressed financially, the rate of donations is going down so we are already experiencing donation stress ourselves, which then means you have less money to hand out," he said.
While cost-of-living pressures are expected to be felt for some time, Ms Kohler said the RBA didn't expect inflation to rise further.
"We are currently revising our forecasts and will publish these at the end of next week, so we are not in a position to preview them yet," she told the committee.
"What we can say is that we think the peak in inflation was at the end of 2022 – at around 8 per cent – and that inflation will begin to ease over the course of this year."
