VIEW: UBS Expects RBA Pause If Q4 CPI Below 8% Forecast

UBS expects the RBA to tighten one last time in February and then hold if Wednesday’s CPI data print below the central bank’s forecast. It expects it then to signal that a pause is imminent with a change in its language and a downward revision to its inflation forecasts. Chief economist Tharenou notes though that the risk to his forecast stems from wages. If minimum and award wage increases decided in June are linked to inflation, then the RBA could hike again. (The Australian)

• “We look for their Statement to soften the ‘tightening bias’, to something like ‘The Board expects an increase in interest rates may still be necessary over the period ahead, but the lower CPI outlook provides scope to consider a period of steady rates’”, Mr Tharenou said.
• Bloomberg has expectations for Q4 CPI at +1.6% q/q and 7.5% y/y (Q3 1.8%/7.3%) with the trimmed mean +1.6% q/q and 6.5% y/y (Q3 1.8%/6.1%) – in line with the RBA’s forecast. December should rise further to 7.7% for the CPI from 7.3% and 5.8% from 5.6% for the trimmed mean.