Inflation likely to fuel cash rate talks | Liverpool City Champion
The latest inflation figures this week are expected to fuel speculation that the Reserve Bank of Australia will raise interest rates this year, just days after an unexpectedly rapid drop in the jobless rate.
The Australian Bureau of Statistics will release the consumer price index for the December quarter on Tuesday.
Economists’ forecasts point to a 1% rise in the quarterly CPI, largely reflecting rising gasoline prices and rising new housing costs.
That would take the annual rate to 3.1%, up from 3% in the September quarter, and just above the RBA’s 2-3% target.
The underlying, more interest-rate sensitive measure of inflation – which dampens sharp price swings – is expected to rise 0.7% in the December quarter.
That would take the annual rate to 2.4% and above 2.1% in the previous quarter, which was the first time it had been in target since 2015.
Such a result would be stronger than the 2.25% the RBA was expecting at this point, with the 2.5% level not expected until mid-2023.
Similarly, last week’s December labor figures, showing a dramatic drop in the unemployment rate to 4.2%, were a faster drop than the central bank had expected, not expecting 4 .25% before the end of this year.
Financial markets expect the RBA cash rate to rise this year, after hitting a record low of 0.1% since November 2020.
RBA Governor Philip Lowe has repeatedly said there will be no rate hikes until inflation is sustainably within target, which would require the rate of unemployment is close to 4% and wage growth is at least 3%.
At this stage, wage growth remains weak at 2.2 percent.
“Much depends on the RBA’s willingness to tolerate inflation at or above target until wage growth is closer to 3% and above,” said Taylor Nugent, an economist at National Australia Bank.
The RBA Board holds its first meeting of the year on February 1.
His immediate outlook on the economy will depend on his views on the impact of the Omicron variant on business.
Consumer confidence and household spending have already taken a hit due to the highly contagious Omicron strain.
The weekly ANZ-Roy Morgan Consumer Confidence Index is due Tuesday. It fell 7.6% last week to its weakest January result since 1992.
NAB will also release its monthly business survey on Tuesday.
Meanwhile, Australian stocks look set for a weak start to a trading week shortened by Wednesday’s Australia Day holiday.
It comes after Wall Street suffered another day of losses on Friday on fears that the US Federal Reserve could soon start raising interest rates to curb rising inflation.
The S&P 500 fell 84.79 points, or 1.9% to 4,397.94, posting its third consecutive week of losses.
The Dow Jones Industrial Average fell 450.02 points, or 1.3%, to 34,265.37, while the tech-heavy Nasdaq fell 385.10, or 2.7%, to 13,768 .92.
Australian equity futures fell 49 points, or 0.7%, to 7006.
On Friday, Australia’s benchmark S&P/ASX200 fell 166.6 points, or 2.27%, to 7175.8 points.
The ASX lost almost three percent last week – its worst performance in 15 months.
Australian Associated Press