MNI BRIEF: RBA Hikes Validated by 2Q GDP

The Reserve Bank of Australia will feel vindicated by Wednesday's second quarter GDP print as it revealed inflation pressures were gathering steam earlier this year, backing their decision to crank the Official Cash Rate 225bps higher in the space of five meetings. The granular details of the 0.9% print highlighted the inflation and wage growth challenges spotlighted by the Bank in Tuesday's statement following its decision to lift rates 50bps to 2.35% (See MNI STATE OF PLAY: RBA To Keep Hiking In Inflation Battle).

The implicit GDP deflator galloped to a 3.3% quarterly and 6.9% annual clip - the fastest pace since 1988-89 - as inflationary pressures pulsed through the economy and international trade. The RBA, which noted pockets of "briskly" rising labour costs on Tuesday, will have taken little comfort from the wage pressures revealed by the GDP print.

Compensation of employees rose 2.4% in the quarter, the biggest rise since 2010. ANZ estimates average earnings rose 5.4% over the year, beating the Bank's 5.2% forecast for June 2022 nominal non-farm average earnings per hour contained in August's Statement on Monetary Policy.

The full impact of the RBA's 225bps of tightening is yet to be seen but the inflation cascading through the economy validates Tuesday's signal of more hikes to come.