‘Very low risk of a pause’ by RBA in February: ANZ

The latest Consumer Price Index (CPI) figures for the year ending November 2022 have shown that inflation rose 7.3 per cent annually.

The Australian Bureau of Statistics (ABS) released the monthly CPI data on Wednesday (11 January), revealing that annual CPI is near a 30-year high (and tied with September 2022 figures).

Finance and industry entities have responded to the new CPI figures, with Australia and New Zealand Banking Group (ANZ) senior economist Adelaide Timbrell stating there was now a “very low risk of a pause by the RBA in February.”

Ms Timbrell explained: “These data are strong enough to reduce any risk of a pause in February for the RBA and reinforce our view that the peak cash rate will be at least 3.85 per cent.

“We currently forecast no cash rate cuts until late 2024,” she underlined.

Ms Timbrell added that the monthly CPI indicator is broadly in line with ANZ’s pick for Q4 inflation of 7.8 per cent, year on year (YoY).

“Though it was above our pick for November (7.0 per cent YoY) and may signal an upside surprise in Q4, given that our Q4 pick assumes a notable electricity impact in December,” she stated.

Trimmed mean inflation, at 5.6 per cent YoY was only 0.1ppt above ANZ’s pick, she added.

“If we see an upside surprise in Q4 inflation, this may put more pressure on the RBA to hike cash rates above 3.85 per cent,” she resolved.

In line with CBA's forecast

Commonwealth Bank Australia (CBA) economist Stephen Wu suggested that the data reinforced the bank's view that the annual rate of inflation "peaked in the December quarter 2022".

“The monthly CPI indicator released today showed prices rose by 0.8 per cent in November 2022. The outcome was in line with our forecast, but slightly above the consensus estimate," he said.

However, he added that the best gauge of inflationary pressures was still the three-month-ended or quarterly rate of change - due later this month.

“Both headline and trimmed mean CPI inflation in quarterly terms looks to have peaked," he continued.

“To be clear, inflationary pressures remain well above the RBA’s 2-3 per cent inflation target, but importantly, underlying inflation continues to show no signs of accelerating. In fact, it is decelerating.

“Today’s monthly CPI indicator suggests that price increases will need to accelerate from 0.8 per cent per month to 3.0 per cent per month in December in order for the RBA’s forecast to be realised.”

Some sector signs of ‘disinflation’, NAB says

National Australia Bank (NAB) economist for markets, Taylor Nugent, said that the results for November confirmed that the slowing in the CPI Indicator in October to 6.9 per cent YoY (which rose to 7.3 per cent in November), meant inflation had not peaked yet.

“Note the Monthly Indicator is not the full CPI and important updates on some key financial and personal services categories remain to be seen,' he said, echoing the CBA economists.

"So too do Q4 electricity prices, which are set to boost CPI as subsidies partially unwind.

“Key for the RBA will be the full Q4 CPI on 25 January. Based on today’s data and alongside strong retail sales, we continue to expect the RBA to hike rates by 25bp in February and March,” he explained.

He added that NAB does not think the November data will do much to shift the RBA’s assessment of the inflation backdrop, though some of the detail is consistent with growing confidence that some of the sectoral drivers of the initial inflation surge are turning disinflationary.

A close forecast says Westpac

Westpac Bank senior economist Justin Smirk said: “Given how close our forecast for the monthly increase we doubt this update will have a significant impact on our current forecasts for a 1.6 per cent qtr/7.5 per cent/year for the CPI and 1.7 per cent qtr/6.7 per cent year for the Trimmed Mean.” 

“We are processing the Monthly CPI Indicator data to incorporate it into a complete Q4 CPI preview.

“As this will include our estimate for December Monthly CPI Indicator it could result in some small revisions to our forecasts,” he added.

RBA has "done enough for now" - AMP

AMP Australia senior economist Diana Mousina said the monthly CPI rise of 0.8 per in November added to the “slightly above consensus” estimates of a 7.2 per cent rise. However, it was below AMP Australia’s own estimate of 7.4 per cent and “close to changes in the monthly Melbourne Institute inflation gauge, which was up by 1 per cent in November, after a softer rise of 0.4 per cent in October,” Ms Mousina explained.

“The measure of underlying inflation, the ‘trimmed mean’ was up by 5.6 per cent over the year to November, in line with our forecasts,” Ms Mousina added.

“The monthly CPI data is not as comprehensive as the quarterly CPI release because not every item in the CPI basket is tracked and measured on a monthly basis (73 per cent of the CPI basket was updated in the November monthly CPI data)," she noted.

Looking at month-on-month changes in the CPI data needs to be interpreted carefully because it can be misleading due to seasonal changes and the measurement issues mentioned, she added.

“In our view, the RBA has done enough for now to get inflation down and it makes sense to keep interest rates unchanged for now to see the full impacts of the 300 basis points worth of rate rises in 2022.

"We see the RBA keeping the cash rate unchanged at 3.1 per cent at the February meeting, but clearly it’s going to be a very close call between no change and a 0.25% rate rise.”

More to be done to fix housing bottlenecks

Master Builders Australia CEO Denita Wawn commented: “Today’s inflation figures … has confirmed rising cost pressures in housing with urgent policy action needed.”

“However, while monetary policy using interest rate rises is starting to show fruits in putting downward pressure on the demand side, more needs to be done to tackle the supply side bottlenecks relating to material, labour and housing supply.”

[Related: Housing spearheads annual November 7.3% CPI jump: ABS]