Westpac will be increasing all its variable interest home loans by 0.14 percentage points from 19 September 2018.
The increase will apply to both owner occupiers and investors and will add about $35 a month to a $300,000 mortgage. The other big banks will probably follow.
Why has Westpac lifted its rates?
It borrows large chunks of the money it lends on international money markets and interest rates there are also rising. In other words, for banks, costs are rising. But so too are costs in many other industries.
The Australian dollar has fallen about 10 per cent since January, meaning every imported good or service costs more. But are retailers such as Harvey Norman, JB Hi-Fi, the Good Guys, Myer, David Jones etc raising their prices? If anything there's a price war in retail land as a walk around any shopping centre will reveal.
Competition is fierce and the arrival in Australia of Amazon has only made life tougher.
You can raise your prices, but customers will vote with their feet and, more importantly, their wallets.
Woolworths and Coles, who dominate the food and liquor industries, have seen super cheap Aldi steal 13 per cent of the market in just a few short years. That's put a big brake on their ability to use their market power to raise prices.
Competition is the reason.
The cost of jet fuel has gone up this year as the price of oil goes up, compounded by the fall in the value of the dollar.
It's a huge issue for Qantas and Virgin Australia, but international airfares have not risen.
Qantas has only 20 per cent of the overseas travel market, Virgin a fraction of that. They know that raising fares will send passengers to other airlines.
It's a different story for domestic airfares. Why? Because Qantas and Virgin have total market domination.
The car industry is another example in which competition is strong and prices are staying down. Some cars cost less now than they did 20 years ago.
Which brings us back to banking. Money is just a commodity. The money you get from one bank is just the same as the money you get from another.
In theory, if a bank puts its prices up, customers should head elsewhere to get their loans. But they don't, and the big banks know it.
Between them they control more than 80 per cent of the mortgage market, so there really isn't anywhere else for the vast majority of people to go, even if they wanted to.
Apathy also plays a part. Bank customers are very 'sticky,' another thing the banks know. So, yes, banks' operating costs have gone up. Those rising costs are stopping them earning the profits they would like to earn.
But because there is no real competitive tension in the banking industry for the big banks, they can put their prices up, safe in the knowledge their customers won't walk in large numbers.
Alan Joyce, Gerry Harvey and most other CEOs look on and marvel, knowing they would do the same if they could. But they can't.