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Predicting a further rise in the cash rate based solely on the figures out of May is “a long bow to draw on a single monthly CPI read”, according to one economist.
Bendigo Bank’s chief economist, David Robertson, has said that the latest inflation data might push out rate relief to May 2025 – updating the bank’s earlier forecast for a cut as early as February – but that it is too soon to prepare for another hike.
“There is no doubt the monthly CPI indicator for May was a setback to progress on inflation, with headline CPI jumping to 4 per cent and the core trimmed mean also higher at 4.4 per cent – however some of the detail within the report was less conclusive,” Robertson said in his July economic update issued by the bank.
“As we’ve outlined here and in our Business Insights website since early 2023, we see relief via RBA rate cuts as a 2025 event, so we’re not surprised that markets (and most economists) are no longer pricing in cuts this year, but the market is now assigning around a 50 per cent probability to another hike which is a long bow to draw on a single monthly CPI read,” he added.
Robertson said then when it comes to the probability of a rate rise, the figures out of May certainly increase the chances, but not enough to make it a likely occurrence.
Moreover, he noted the quarterly inflation figure due at the end of this month would provide more insight than the May figures alone, and stressed that the RBA had a mandate to provide for both price stability and full employment.
“This means upcoming jobs data will be almost as influential as inflation data,” Robertson said, noting that Bendigo expects to see the unemployment rate record a gradual increase when the next labour force report is out on 18 July.
Another source of uncertainty ahead, according to the economist, is fiscal policy, with stage three tax cuts now underway, and a range of “cost-of-living measures” having come into effect at the start of the financial year.
“How much of this money is spent versus saved will be crucial for imbalances between supply and demand, which will take time to become apparent.”
With all this in mind, Bendigo’s forecast for the new financial year still includes moderating inflation helped by base effects and a firmer Australian dollar impacted by other central banks’ pursuing rate cuts. The bank also sees slower gains in house price growth in the months ahead.
“But economic uncertainty here and geopolitical risks overseas remain a drag on confidence, so the rebound will likely be in small steps,” Robertson said.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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