inflationary approaches have been surging across the globe and in turn financial markets have been
feeling the heat and if domestic inflation was not enough australians also have to face the threat
of rising inflation in the us one of the key economies in the world
the u.s has an enormous hold on the financial ecosystems of other countries a jump in inflation
in the u.s signals rising living costs across the world and for australians the implications
of this can be seen in multiple areas the highly interconnected global economy means that small
changes in one country quickly travel to another part of the world and additionally inflation in
america has shot up at never foreseen rates due to many global adversities taking place at once
for one the rush ukraine war has created much of the price momentum across countries
and a damaged supply chain ecosystem only adds to the problem so how do price pressures travel
from the us to australia here are a few key points to remember about rising inflation
first of all there's no denying that the u.s delay is a threshold currency for many countries
fluctuations in the dollar are reflected in the economies throughout the globe but on
the contrary the australian dollar does not have that much impact on the us let alone the entire
world first and foremost are the rises in interest rates which have resulted from soaring inflation
in march the u.s federal reserve raised federal funds rate a few weeks before the reserve bank
of australia raised its cash rate rising u.s interest rates can impact australian markets
through the borrowing channel aussie banks depend on foreign markets to access their funds
and rising interest rates can mean higher borrowing costs for domestic
banks and banks paying higher borrowing fees will ultimately forward these costs to consumers
the bank raised its interest rates soon after the u.s federal reserve announced its first rate hike
and so the rba is likely to take a path like the us federal reserve to protect the bank's interests
and going by this narrative the fed's latest rate hike of 50 basis points could mean
the central bank will also take a more aggressive route in monetary policy tightening the fact is
enough to ring alarm bells across mortgage holders which form a large proportion of the
australian population at the moment mortgage lending is the highest level ever in australia
and therefore the australian economy is highly susceptible to interest rate changes
high inflation often gives birth to vicious cycles of a never-ending rise in prices and rising prices
across the us will quickly spill over to other parts of the world including australia this means
that companies in the us facing increased production costs will not just sit idle and
do nothing instead they'll try to regain their margins by pushing up the prices of their products
and so imports from the us are likely to become more expensive and those items which do not
have an alternative in the home economy will be imported at high prices depending on american raw
materials australian producers will be forced to raise the prices of goods and the services
they offer to domestic consumers on top of this supply-side snags have already contributed to
higher costs other areas that have already shown an impact are the equity and bond markets for one
rising u.s inflation pushed up the u.s treasury bond yield which means that higher borrowing
costs for australian banks sharp rises in u.s bond yields can also hurt equity markets
and interestingly the australian share market has shown a negative impact after reports of
high inflation in the us came out the reserve bank's massive rate hike of 50 basis points
led to a decline in investors sentiment with all sectors of the share market falling although on
the brighter side of things rising inflation could also signal higher wages in australia
at the moment experts are nervously eyeing the upcoming wage data which will shed more light
on where the economy is headed it may also hint at how aggressive reserve bank of australia's
upcoming rate hikes may be more updates to follow i'm holly shields for kalkine media