Little Wiggle Room On Inflation outlook

The RBA's updated inflation forecast profile suggests very little wiggle room in terms of the monetary policy outlook.

• The central bank now projects headline inflation to be 4% mid next year (versus 3.25% prior), returning to the top-end of the 2-3% target band by the end of 2025 (prior forecast was 2.75%). The core inflation (trimmed mean) has a similar trajectory, albeit returning to the top end of the band by the middle of 2025 and then holding there to the end of the year (prior forecasts had 2.75% by end 2025). RBA link is here.
• The growth outlook is a touch firmer, 1.75% mid 2024 (1.25% prior), 2% end 2024 (1.75% prior), 2.25% mid 2025 (2% prior). The unemployment rate is forecast at 4% mid next year (4.25% prior), but the 4.25% forecast to end 2025 was unchanged.
• RBA OIS pricing is a touch weaker compared to pre SoMP levels, see the table below. Terminal rate hike expectations have firmed from post RBA lows. We remain below late October highs though (4.54%).
• Looking ahead, Q3 WPI (Nov 15), employment (Nov 16), retail sales (Nov 28) and CPI (Nov 29) are key data before the December 5 RBA meeting but since there are no new forecasts even upside surprises are unlikely to push another hike. Watch services, core and house prices though. But February is definitely live with Q4 CPI on January 31 and revised staff forecasts available. If those projections show inflation at target not until 2026 (Q2:26 will be added), then expect more tightening. Either way “higher for longer” inflation means rates are high for longer.