On May 2, the Reserve Bank of Australia (RBA) surprised the market by increasing interest rates by 0.25 percent, bringing the official cash rate to 3.85 percent, the highest since April 2012. The decision was unexpected, as most people anticipated a pause in May following the RBA’s decision to halt the interest rate hike cycle in April. The RBA attributed the move to high inflation, despite the annual consumer price index dropping from 7.8 percent to seven percent in the March quarter. RBA Governor Philip Lowe stated that inflation is still too high, and more rate increases are necessary to bring inflation within the target range. The RBA is also concerned about the effects of high services price inflation and labor costs on the economy, given subdued productivity growth. The RBA predicted that it may take a few years for inflation to return to the target range of two to three percent. The Real Estate Institute of Queensland warned that the latest rate hike would significantly impact homeowners and investors. However, Michael Knox, the chief economist of Morgans, Australia’s largest stockbroking and wealth management network, did not expect a drop in house prices.