VIEW: Goldman Sachs Now See Back-To-Back Hikes In Aug & Sep

Goldman Sachs note that “Oil prices have increased to their highest level since 2008 & we have raised our Brent oil forecast by ~40% to $135/bbl through end-2022.”

• “We expect higher fuel prices to boost quarterly headline CPI by ~40bp in both Q122 and Q222 respectively, with flood-related disruptions adding a further 30bp to CPI in each of those quarters (mainly via food prices). By Q222, these tailwinds are forecast to lift annual growth in headline CPI to a materially higher peak of 5.3% Y/Y (prev. +3.9 Y/Y), with trimmed mean inflation accelerating to 3.9% (prev. 3.5%) and remaining above the RBA’s 2-3% target band until early 2023.”
• “We estimate the surge in global commodity prices will present a net ~0.3ppt headwind to Australian GDP growth over H122 as higher fuel prices dampen household spending. That said, further ahead, we expect rebuilding activity and some incremental mining capex to add to growth in late 2022 and early 2023. Overall, we have lowered our CY22 GDP forecast by 30bp to 3.6% but lifted our CY23 forecast by 20bp to 3.0%.”
• “Given this mix of a much larger inflation overshoot - yet manageable risks to growth - we now expect the RBA to deliver back-to-back rate hikes in August and September (prev. November lift-off). By August, wages growth will still likely be well below 3.0% - but we expect the RBA to ultimately adopt more of a risk management stance on concerns that structurally higher commodity prices will elongate global supply side pressures and un-anchor inflation expectations. Further ahead, we expect rates to rise at each quarterly Statement on Monetary Policy from November 2022 - to a terminal rate of 2.50% by Q324.”
• “We view the risks around the inflation outlook and path for monetary policy as fairly evenly balanced. To the upside, materially stronger inflation in H122 combined with a fall in the unemployment rate to around 3.5% would likely pull-forward lift-off to June. To the downside, escalating conflict in Europe and a related sharper tightening in global financial conditions could lead to a global recession and deflationary pressures - delaying or limiting the need for RBA rate hikes.”