Free Trial

Delay To Target Return Likely To Drive Further Hikes, CPI Data Key

RBA

The RBA raised rates in November due to concerns that without the move, it wouldn’t achieve its target by end 2025, which now seems to be the boundary. The 2.9% forecast is based on 1-2 hikes. Underlying/services CPI, inflation expectations and the inflation outlook remain key to future decisions, as any further indication that the return to target is likely to be delayed will probably result in further tightening. October CPI is out on November 29 but the key will be Q4 CPI on January 31.

  • The RBA discussed both unchanged rates and a 25bp rate rise. It tightened because of risks that it wouldn’t return inflation to target by end 2025, and that inflation pressures remain broad based and demand driven. It also noted that there had been “a slight upward drift in some” market inflation expectations measures. This was one of a number of references showing early concern that they are rising.
  • Resilient domestic demand is also a risk to achieving target and there are “growing signs of a mindset among businesses that any cost increases could be passed onto customers” due to the “strength in demand”.
  • It also warned that the next phase of disinflation will be slower as need to reduce demand pressures, whereas the moderation from Q4’s peak was due to the resolution of supply-side issues.
  • The inflation target is only achieved if productivity improves, thus implying that if it doesn’t further tightening may be needed. Today Governor Bullock said that wages growth at 4% is “on the high side” when there is no productivity growth (see MNI Inflation Main Challenge, Rates Likely To Be High For Longer).
  • There are significant uncertainties still stemming from the impact of the “surge in population growth”, and the “geopolitical and economic outlook”.

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.