RBA rate decision in balance despite slower inflation
The latest CPI figures have left economists divided over the bank’s next course of action.
A surprise slowdown in inflation last month has failed to rule out the prospect of a rate hike in the minds of economists ahead of the RBA’s meeting next Tuesday.
Fresh inflation data from the ABS on Wednesday showed the consumer price index eased to 4.9 per cent over the year to October, down from 5.6 per cent in September.
CreditorWatch chief economist Anneke Thompson said the RBA would “almost certainly” keep rates steady next month but households should not expect a rate cut until “at least Q3 2024”.
She said the monthly inflation gauge, particularly seasonally adjusted inflation, showed “positive signs” ahead of the RBA’s rate decision.
“Monetary policy is taming the inflation beast. Excluding volatile items (fruit and vegetables and fuel), monthly CPI reduced to 5.1 per cent, down from 5.5 per cent the previous two months. Seasonally adjusted CPI fell below the 5 per cent barrier, to 4.8 per cent, for the first time since February 2022.”
While inflation was still above the RBA’s target range of between 2 and 3 per cent, Ms Thompson said the slowdown, combined with weak consumption and higher unemployment numbers, would be enough to keep rates steady for the next month.
“The RBA will almost certainly hold the cash rate steady at the December meeting,” she said.
“This is good news for retailers and summer holiday makers.”
But BDO economics partner Anders Magnusson tipped the RBA to continue its tightening campaign to bring down stubborn services inflation.
“The RBA’s medium-term focus means their cash rate setting will be based more on the quarterly inflation data,” he said.
“Today’s monthly inflation data and the previous quarterly inflation data each show persistently high services inflation. This needs to come down to squash the last few percentage points of inflation and achieve the RBA’s target range, so we have not declared victory over inflation yet. We expect the RBA to raise the cash rate further to achieve this.”
“Raising the cash rate would depress demand, soften the labour market, slow wage growth and ultimately, reduce services inflation.”
Last month, newly-appointed governor Michele Bullock raised rates by 25 basis points to 4.35 per cent – a 12-year high – to respond to stronger-than-expected inflation.
The hike ended four months of consecutive rate pauses between July to October, and was the bank’s 13th rise since May 2022.
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