RBA rates decision hangs off this week’s inflation figures
A weak inflation report on Wednesday could be the only thing standing between mortgaged homeowners and a 13th rate hike when the RBA board meets on August 1.
A weak inflation report on Wednesday could be the only thing standing between mortgaged homeowners and a 13th rate hike at the next Reserve Bank board meeting, economists say.
After deciding in favour of holding rates at 4.1 per cent in July, the RBA has made it clear that it remains committed to bringing inflation back under control and is prepared to do more if required.
A solid jobs report last week revealed another bumper month of jobs growth, and experts say Wednesday’s consumer price report would need to come in well below expectations to deter the RBA board from increasing the cash rate to 4.35 per cent when it meets on August 1.
CBA economist Stephen Wu predicted a quarterly increase in consumer prices of 0.9 per cent, from 1.4 per cent in the previous quarter, which would mark the slowest pace since September 2021. Annual inflation would drop from 7 per cent in March to 6.1 per cent in the year to June.
Despite clear evidence that inflation is past its peak, inflation remains well above the 2-3 per cent target.
Mr Wu said the ongoing signs of economic resilience would push the RBA to hike again. “A material undershoot of CPI, however, could shift this view,” he said.
Judo Bank economic adviser Warren Hogan said confirmation last week that unemployment had not budged from its near 50-year low of 3.5 per cent would make it difficult for the RBA to hold for a second straight month.
With markets pricing in a roughly 60 per cent chance of a hike at the upcoming RBA board meeting, Mr Hogan said inflation would have to come in significantly under consensus forecasts for a quarterly increase of 1 per cent, or 6.2 per cent annually.
Mr Hogan said RBA governor Philip Lowe would additionally be keen to leave his anointed successor, deputy governor Michele Bullock, with some “clear air” when she takes over in mid-September by erring on the side of more increases now.
“Lowe would definitely want to make sure to not put pressure on the new governor to hike rates straight off the bat,” he said.
Australians can expect the June quarter consumer price numbers will confirm the ongoing cost-of-living crunch on household budgets.
Food prices will be nearly 8 per cent higher in the year to June, according to Westpac, with staples such as bread and dairy products climbing by double digits.
The CPI figures will show electricity prices jumped by 13 per cent in the last financial year, while paid rents will be 6.6 per cent higher and insurance costs up 8 per cent, on Westpac’s estimates.
With many Australians still travelling in droves, despite higher rates of cost of living, travel prices are expected to have jumped by 12 per cent.
While overall inflation is easing and well past its peak of 7.8 per cent in December, they said Wednesday’s consumer price report would underline the ongoing strength in services costs thanks to climbing wages, power bills and rents. These “stickier” price increases would contribute to the RBA deciding to hike next Tuesday, followed by a further move to 4.6 per cent over coming months, NAB economist Taylor Nugent said.
“Elevated services inflation underscores the size of the disinflation task still ahead for the RBA even as some of the initial goods and construction drivers of inflation have faded,” Mr Nugent said. The pulse of inflationary pressures has also abated internationally, supporting the case that cost-of-living strains will continue to ease in Australia.
Consumer price growth has now retreated to 3 per cent or below in the US and Canada, and inflation has also retreated, albeit to much higher levels, in the UK and New Zealand.
AMP Capital chief economist Shane Oliver said “the decline in global inflationary pressure is a positive for Australia too and adds to the likelihood that the RBA is at or near the top on rates”. Dr Oliver said he still expected another rate hike next week to 4.35 per cent, given the central bank’s “ongoing RBA concerns about high services inflation, rising wages growth and weak productivity”, even as he warned that the risks to the economy were rising.
Booming jobs growth in June also supported another move up, he said, but Wednesday’s consumer price figures would be “critical” to the ultimate decision, as would Friday’s retail sales numbers.
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