The Reserve Bank is keeping a close eye on inflation, after recent figures revealed there is “still strength” in price pressures across the economy.
Speaking at an event last week, RBA’s chief economist, Sarah Hunter, said, the latest inflation figures confirmed “that there’s still strength in a number of categories that we’ve seen up until this point that’s still there.”
“Clearly there’s still some strength in inflation and that’s a key consideration for the board in their decision making.”
The latest monthly CPI indicator, released on 29 May, revealed that Australia continues to grapple with persistent high inflation.
The consumer price index (CPI) rose 3.6 per cent in the 12 months to April 2024, according to the latest monthly CPI indicator from the Australian Bureau of Statistics (ABS).
The increase in annual inflation in April is up from 3.5 per cent in March, and above the market expectation of 3.4 per cent.
Economists have agreed that the latest monthly CPI data has given the RBA enough reason to postpone rate cuts.
Though Hunter was reluctant to reveal the RBA’s inner thoughts, she did acknowledge that inflation is a significant concern for the central bank.
“In terms of what’s keeping me up at night, I’m obviously very focused on inflation, and those inflation dynamics, also very focused on the international environment and how that’s evolving and how that impacts us here in Australia,” Hunter said.
Elaborating on inflation, she said the board is very focused on the fact that inflation is “clearly” above the target band.
“We’re constantly assessing the data and updating the outlook,” Hunter added. “Everything is always moving, and you’re never 100 per cent sure how things are going to play out.”
Commenting on the latest CPI data in his weekly note on Friday, AMP’s Shane Oliver described the uptick in the monthly indicator as “disappointing and contrary to our expectations for a fall”.
Describing the data as “worrying for the RBA”, Oliver said: “The further uptick in inflation keeps the risk of another RBA rate hike high and reinforces that rates will be high for longer.
“This was reflected in money market expectations that swung back towards pricing in the risk of another rate hike and pushed back expectations for a rate cut till late next year.”
However, Oliver and AMP remain optimistic, noting that inflation is “likely to resume its downtrend”. Given the weakening economy, Oliver said, “We still see the next RBA move as being a cut.
“To borrow from the minutes to its last meeting, it remains appropriate for the RBA to continue to ‘look though short-term variation in inflation’ and ‘to avoid excessive fine-tuning’.
“At this point, we are continuing to see the first cut coming at year end but note that there is a high risk that it will be delayed into 2025,” the chief economist said.
Most economists expect rates to remain higher for longer, including HSBC’s Paul Bloxham, who also sees a rate hike as a possibility.
