Goldman doesn’t think so. I do.
Australia’s monthly CPI fell -0.4% mom in May, with the annual rate easing 120bp +5.6%yoy. The outcome was well below expectations (GSe:+0.5%mom, 6.5%yoy; BBG: +6.1%yoy).
That said, the deceleration in the month was driven by a sharp fall in holiday travel & accommodation prices (-11.3%mom) and fuel prices (-6.7%mom). Excluding travel and volatile items, the CPI rose +0.5%mom, with the annual rate falling 10bps to6.4%yoy.
Our new measure of weighted-median inflation also remained fairly elevated at 6.3%yoy (prev. 6.2%yoy), although sequential momentum eased somewhat.
From the RBA’s perspective, today’s update is welcome further confirmation that overall inflationary pressures continue to ease. The weaker-than-expected report also increases the risk the RBA completes the tightening cycle at a lower peak than our current 4.85% base case, potentially skipping a hike at next Tuesday’s July Board meeting.
On balance, however, we continue to lean towards the RBA hiking next week given inflation is still far too elevated (ahead of large rises in electricity prices and minimum wage/awards next week), evidence of persistently strong services inflation, the extremely tight labour market, and strong growth in house prices.
We will be paying close attention to tomorrow’s data on retail sales and job vacancies.
ABS job vacancies are lagging. We know retail is cooked.
My view is the RBA will now pause. The recent minutes showed the last meeting was a line ball decision and:
- every labour market leading indicator I look at is softening fast, in part owing to Albo mass immigration deluge,
- the consumer is bunkering with manifold reports of broad consumption tumbling, not just retail.
This is before a lot more embedded tightening lands on households as banks catch up to hikes and the fixed-rate reset runs right through H2.
I expect a hawkish hold from the RBA next week. It will not want to release the psychological pressure.
But it is odds-on that the tightening cycle is done in Australia.
