August Meeting Live, Watch Q2 CPI & June Labour Data

At the July meeting, the Board discussed both a 25bp hike and a pause but decided that the arguments for the latter were “stronger”. This time it appears that the decision was not “finely balanced” but the minutes indicate that the cycle may not yet be over and that decisions remain very data dependent, as growth concerns seem to have increased. Q2 CPI due on July 26 and staff forecasts are likely to be key components in the August 1 outcome.

• The statement that “some further tightening of monetary policy may be required to bring inflation back to target within a reasonable timeframe” was repeated in the minutes from the meeting statement. This suggestion of further hikes had been omitted from the June minutes. Thus the August meeting remains live.
• One of the key reasons for the pause was to have time to “assess the impact” of recent tightening and the minutes note specifically that at the August meeting the Board will have more information on inflation (ie Q2 CPI data), global economy, labour market (July 19) and household spending plus updated RBA forecasts and “revised assessment of the risks” (ie. to achieving inflation target by mid-2025).
• The risk that growth slows more than expected driven by weaker consumption and thus unemployment rises more than forecast was discussed giving the minutes a more dovish tone. The RBA paused because of lags, restrictive stance, further refis, declining inflation & lower commodity/shipping costs, slowing growth and uncertainties.
• Inflation concerns were more explicit in the minutes than the meeting statement. The case for a hike included the risk that the inflation target wouldn’t be met by mid-2025, high rent, services & electricity prices, strong unit labour cost growth, sticky overseas inflation, tight labour market and the risk to wages.