The Commonwealth Bank of Australia (ASX: CBA) share price is down 1.4% in morning trade, in line with the S&P/ASX 200 Index (ASX: XJO) losses.
CBA shares closed yesterday at $93.22 and are currently trading for $91.93.
It was shaping up to be a pretty good week for the big bank until Thursday rolled in.
Central banks could upset the apple cart
The CBA share price closed flat on Monday before gaining 1.2% on Tuesday and another 1.1% on Wednesday.
Then, on Thursday, investors were greeted with the latest round of inflation figures out of the United States. With a 1.3% increase in June, the world's biggest economy reported a searing 9.1% annual inflation figures. That sees US inflation running at 40-year highs, and significantly higher than market expectations.
This almost guarantees continuing aggressive tightening from the US Federal Reserve, perhaps even a full 1% rate increase, with central banks the world over following suit.
Here in Australia, Thursday also saw the Australian Bureau of Statistics release the latest labour figures. Those pointed to record levels of employment even as the labour participation rate increased, with the unemployment rate falling 0.4% to a new low of 3.5%.
While it's great to have most Aussies employed, this will put further upward pressure on wages, adding fuel to the inflation fire. And it also almost locks in another rate rise from the Reserve Bank of Australia in August, with analysts forecasting a rise of 0.50% to 0.75%.
The combination of these factors saw the CBA share price close down 1.5% yesterday even as the ASX 200 managed to gain 0.4%.
Why fast rising rates could stymie the CBA share price
Gradual rate rises can be good news for banks, as higher rates enable the banks to increase their lending margins.
But fast rising rates can pose some significant headwinds, and it's these fears that look to have taken a bite out of the CBA share price yesterday.
If the RBA takes the cash rate too high too fast, it will put tremendous pressure on highly indebted homeowners and could see a surge in defaults. Fast rising rates will also decrease the appetite for new home loans from both investors and owner occupiers.
All this, while inflation erodes the overall spending power of the Aussie dollar.
