Retail spending hit record highs in March and home loans proved stronger than expected in what could prove to be the last hurray before rising interest rates take their toll.

The Australian Bureau of Statistics said retail sales rose 1.6 percent to $33.6 billion in March, growing three times faster than economists had expected and 0.8 percent higher than the previous record from November 2021.

Australian Retailers Association CEO Paul Zahra said it was a phenomenal result, although spending issues are looming in the coming months.

“We are in an uncertain economic environment where cost of living pressures are beginning to take hold and interest rates are rising for the first time in over a decade,” said Mr. Zahra.

The data came 24 hours after the Reserve Bank of Australia hiked interest rates and after the latest inflation figure, which hit its highest level in more than 20 years.

The RBA raised interest rates to 0.35 percent from a record low of 0.1 percent after its monthly board meeting

RBA Governor Philip Lowe warned that more rate hikes could be expected in the coming months as inflation would rise significantly without them.

The Commonwealth Bank of Australia became the first of the big four banks to raise its standard rates on variable-rate home loans on Tuesday, passing on the full 0.25 percentage point hike.

ANZ and Westpac were quick to follow, while National Australia Bank caught up with its peers on Wednesday morning.

Prime Minister Scott Morrison called on all banks to pass on higher interest rates to savers.

Of the four big banks, only Westpac and NAB have so far announced increases in savings rates.

Analysis by mortgage comparison site Rate City shows that if cash rates hit 2.60 percent by August 2024, as expected by the NAB, someone with a $500,000 mortgage could see their monthly repayments increase by $675 compared to what he’s paying now could see it going up.

“The May rate hike is just a taste of what’s to come from the RBA,” said Sally Tindall, Rate City’s director of research.

“Whether you have a variable rate loan or an expiring fixed rate loan, be prepared to pay a lot more.”

Home loans reported by ABS also rose 1.6 percent in March.

Owner-occupier loans rose 0.9 percent, partially recovering from February’s 4.7 percent decline.

Loans to homeowners also rose 2.9 percent to a record $11.7 billion.

“Lending will come under pressure in the coming months as the RBA hikes interest rates and momentum in the housing market is already slowing,” said AMP economist Diana Mousina.

The CoreLogic National Home Value Index for April, released Monday, rose just 0.6 percent, the smallest increase since October 2020.

Tight housing affordability, rising fixed-term mortgage rates and lower consumer sentiment have already weighed on home prices after last year’s surge.

Rising interest rates will also hurt the economy and industry.

The Australian Industry Group/Housing Industry Association’s construction index performance fell 0.6 points to 55.9 in April, but held above the crucial 50-point market that separates expansion from contraction.

Peter Burn, Ai Group’s chief policy advisor, said while new orders are growing faster than in March, the industry is struggling to source materials and labor and is under continued price pressure.

“The rate hike announced yesterday by the Reserve Bank and the hinted further rate hikes are likely to dampen demand growth somewhat, particularly in the housing sector,” said Dr. Burn.

Australian Associated Press