VIEW: ANZ: Strong Wages Point To A 40bp Lift In The Cash Rate In June

ANZ note that “the Q1 GDP report has prompted us to look for the RBA to lift the cash rate by 40bp at the June meeting – previously we expected 25bp. While GDP was in line with our expectations, today’s data confirmed the very strong average hourly wages growth that yesterday’s Business Indicators report implied. Our estimate of 5.3% y/y is well above our expectations from just a few weeks back, certainly much stronger than the signal from the Wage Price Index, and seemingly tracking above the RBA’s forecast. It is also worth noting that the broadest measure of consumer inflation (the household consumption deflator) had the highest quarterly increase since 1990 (outside the GST). This suggests to us that policy needs to lean more strongly against the broadening of inflation pressures. As such we think the strength of the price and wage measures in the GDP data should be enough to convince Governor Lowe that “there is a very strong argument” to deviate from a regular 25bp move and get the cash rate a little higher a little bit faster.”