While no one has a crystal ball, the prospect of further interest rate rises now seems to be as certain as the sun rising each day.
The Reserve Bank of Australia board met Tuesday afternoon and, as many experts forecasted, it raised the cash rate by 50 basis points.
That makes it a whopping 125 basis point jump over just nine weeks. But inflation remains rampant and central banks around the world are determined not to let it get out of hand, as it did in the awful 1970s.
Finder head of consumer research Graham Cooke said it's a tough time for home-owning Australians.
"There's no light at the end of the tunnel just yet, with our panel forecasting at least two more rate rises to come."
The ASX shares to stay away from
In such an environment when consumers will start locking up their wallets, which ASX shares make the best investments?
Montgomery Fund portfolio manager Andreas Lundberg had some ideas on a recent blog post, while reminding investors that the current interest rate is still historically very low.
Firstly, in the short term, he would stay well away from discretionary consumer stocks.
That warning is especially relevant for businesses with customer demographics that are exposed to home loans and "other large necessary expenses".
"If you want to have any exposure to discretionary spending, look for companies catering to younger people," he said.
"[They] are less likely to have mortgages and be responsible for electricity bills and who are seeing good wage inflation due to minimum wage increases and current labour shortages."
The ASX shares to buy
His second tip is surprising: buy up high-growth companies.
This is because Lundberg personally believes the RBA will end up not raising interest rates as much as the market is expecting.
The massive home loans taken on in the past decade will mean Australians will be much more demoralised by the current rate hikes compared to past cycles.
"RBA will get cold feet way before they put through anywhere near the level of increases in the cash rate that the market is predicting, as we will see a real contraction in discretionary consumption from households as they come to terms with the inflationary environment we are in at the moment."
So once it dawns on the market that the RBA will hold fire, a golden opportunity in heavily fallen high growth shares will be realised, according to Lundberg.
But he warns investors to be discriminating when they're shopping for these ASX shares.
"The key will be to figure out which of them have a robust enough business model to survive a likely severe economic downturn before lower central bank rates increase economic activity again."
