Next interest rate hike : This is really part of the dilemma that the Reserve Bank faces when it makes an interest rate decision next week, and of course now the markets are saying well, they’ve got the chance to pause and to wait and see. Is that your view about this? I think we will get a pause at the April meeting.
Next interest rate hike
We’ve had a bunch of data points over the last little while that certainly don’t make the case for another Next interest rate hike, so I think we’ll see a pause next week. I’m not convinced that will be the last. I think the RBA will still need to do some hikes when we get some more data towards the middle of the year. But right here, right now, good news.
I think we’ll get a pause out of it at the April meeting. We can see there that the peak in this monthly inflation series was certainly out there in December. Now easing back out, we look at some of these areas where annual inflation is still much higher than that.
The target band of two-to-three percent electricity is the standout 17.2 percent even for holiday travel though it’s coming off fuel prices are coming down but as we said earlier, you know it’s stubbornly high in many parts of the country but of course you know unless it’s coming down it doesn’t add to deflation the areas here where you can see over the next 12 months there are big price falls potentially that will take the pressure off inflation.
Yeah, look, I actually think that that housing series is looking pretty encouraging. Rents are still very strong but in February we saw a little bit of evidence that maybe we’re starting to peek out on that rental inflation that is a big part of the CPI.
It’s obviously a lot of focus on particularly young households that are trying to rent, so maybe we’re seeing a little bit of softening there that’s helpful, but you know there are other areas where we’re also seeing strength things like insurance and financial services accelerated in the month of February, so it’s always the case there’s a bit of swings around abouts in the details, but certainly it’s looking like Q4 was the peak, and we’re starting to see a little bit of softening coming through.
Okay, so last year the quarter, the fourth quarter, was the peak; it’s coming down, but the Reserve Bank has a target ban currently. We see the Reserve Bank review come out this week. That’s a two to three percent. Now the problem is if inflation bottoms out at four and a half, it’s still not two to three percent, and then you’ve got a dilemma.
The Reserve Bank still has a dilemma in that interest rates have to stay higher for longer. That’s something that the Reserve Bank has to deal with. Governor Philip Lowe has talked about this before, and I think you know we’re going to see just where we’re going to land here we’re certainly coming off and that’s encouraging that what’s going to where are we going to be in six months 12 months time and as you say if inflation is still above that Target that’s going to be problematic for the Reserve Bank and for mine because it’s going to start putting pressure on wages.
Okay, so you go to wages, and that’s interesting to contemplate because you’re right. All of the wage data that’s come out today shows it hasn’t jumped with the inflation rate, but then you start to see industrial relations minister Tony Burke saying the government will recommend a full inflation increase in wages on the minimum wage when the fair work commission makes its decision.
That’s the type of thing that starts to feed into a wage spiral even if inflation is starting to fall. Yeah, that’s exactly right, and that is the tension that is the difficulty we’re facing in terms of managing these inflated costs of living pressures.
How to get that balance right between not adding to inflation but then also ensuring that your workers aren’t getting hit excessively by cost of living pressures Where that lands is still a little bit uncertain, and I don’t think we can just rest on the fact that through 2022 wage pressure was soft;
I think you know there’s a chance to start to accelerate for the reasons you suggest; I think we need to watch outcomes over the remainder of 2023 in particular, and if it’s looking uncomfortable with the Reserve Bank, we know what they’ll do—they’re going to hike rates.
Okay, so you say no rate rise in April, how many more have you got in your model right now? Look, I Ross I think we’ll get another one in May, and then for the Q1 CPI, so this was the monthly number for February; we’re still seeing what we’ll get for the full quarter. another hike in May and then another one in August, so two more hikes I’ve got the terminal rate at 4.1.
