Could higher inflation point to a return to a 50 basis point RBA increase in November?

UPDATE: The Reserve Bank has announced a 25 basis point increase to the cash rate for November. 

Westpac Chief Economist Bill Evans expects the RBA to make the bold call, returning to a 50 basis point (0.50%) increase following October’s 25 basis point increase. 

“With markets and the media, to date, not embracing the prospect of a 50 basis point move in November, there can be expected to be an appropriately adverse impact on confidence to a decision to go by 50,” Mr Evans said. 

“If the inflation report had been in line with expectations, then continuing the sequence of 25 basis point moves would have been appropriate. 

“But not responding firmly to this genuine shock would risk the impression of a central bank that is less than fully committed to the inflation task.”

Inflation data for the September quarter released last week, revealed a 1.8% quarterly increase, with annual inflation now sitting at 7.3%, exceeding New Zealand. 

“The inflation report has clearly highlighted that Australia is not different to other countries,” Mr Evans said. 

“Inflation in Australia looks set to exceed US inflation by the end of the year.”

US inflation data is published monthly as opposed to the RBA publishing inflation data quarterly; its central bank meets to determine its cash rate roughly every six weeks, as opposed to the RBA's monthly board meeting.

The ABS has attempted to up the ante in recent times, publishing the first monthly inflation print in September to assist policy decisions, yet excluding major items such as groceries, fuel and electricity. 

Further, retail sales data released Monday by the ABS details spending increased 0.6% in September fueled by strength in the food industries. 

This marks the ninth-consecutive rise month-on-month in retail spending, with the ABS detailing the National Day of Mourning for Her Majesty Queen Elizabeth II a contributing factor to Aussies spending more. 

ANZ economists forecast 25 basis point increase

ANZ Economists remain more conservative in their November forecast, detailing a 50 basis point increase to the cash rate is possible, yet the RBA will prefer to hike more frequently than shift tack back to 50 basis points.

“We expect the RBA to push its inflation forecast for 2022 above 8%,” ANZ’s Head of Australian Economics David Plank said. 

“Despite this we think the RBA will stick with a 25 basis point move in November and also go in December, with an eventual peak of 3.85% by May 2023.” 

CommBank economists call for 25 basis point increase

CommBank Head of Australian Economics Gareth Aird said on balance a 25 basis point rate hike is favoured at the November Board meeting. 

“But we think it’s probably a closer call than is implied by market pricing,” Mr Aird said. 

For reference, CommBank economists detail the market is pricing in a 25% chance of a 50 basis point increase. 

NAB economists maintain forecast of 25 basis point increase

NAB Group Chief Economist Alan Oster said the strength in inflation, tightness in the labour market and resilience of demand all indicate further rate increases are needed.

“As such we continue to see two more 25 basis point increases in November and December taking the cash-rate to 3.1% by year-end,” Mr Oster said. 

“We then expect two additional 25 basis point increases in February and March 2023, which would follow the release of the December quarter in January and wages data in February.”

Advertisement

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Image by Andrea Piacquadio via Pexels