Financial markets have recently lifted their expectations of another 25 bp rate hike from the Reserve Bank of Australia (RBA).
They now ascribe a near 100% probability of another rate hike by the end of the year, although they are not expecting the RBA to hike at next month’s meeting.
The chances of another rate hike lifted last week after the Australian Bureau of Statistics (ABS) reported seriously strong job growth in June (+76,300, with 29,300 full-time) and a steady unemployment rate of 4.4%, which remained steady only because the labour force participation rate rose by 0.3%:
On Wednesday, the ABS will release the other key piece in the interest rate puzzle: the June CPI. If trimmed mean inflation remains stubbornly high, the RBA could be prompted to hike rates at next month’s monetary policy meeting.
Chart from Alex Joiner (IFM Investors)
On this front, the news isn’t bright. Westpac forecasts that monthly trimmed mean inflation will be 0.4% for the month, taking the annual pace to 3.7% (up from 3.6%).
“However, market attention will be firmly on the quarterly trimmed mean, which we expect to rise 0.9%qtr and lift the annual pace to 3.7%yr”, Westpac says.
Westpac also expects trimmed mean inflation to hit the midpoint of the RBA’s 2% to 3% inflation target by Q3 2028.
Were Westpac’s inflation forecasts to come to fruition, it would pressure the RBA to hike, given 3.7% annual trimmed mean inflation for the June quarter would be well above the RBA’s own forecasts, illustrated above.
