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Speaking before the Senate economics legislation committee yesterday (26 October), the Reserve Bank of Australia (RBA) governor Michele Bullock said she was unable to answer on whether or not the September quarterly inflation data released by the Australian Bureau of Statistics (ABS) will affect the central bank’s inflation forecasts and monetary policy.
When asked by senator Andrew Bragg if the September quarterly Consumer Price Index (CPI) data represented any “material change”, Ms Bullock responded: “We’re still analysing the number, I’m not prepared to say yet whether or not it’s to change to our forecast, because there is going to be a change to our forecasts.
“We have to look at whether or not it’s material enough to change our views on monetary policy.”
Ms Bullock stated that inflation was “a little higher” than the RBA’s previous forecast.
“The print came out a little higher than we’d been forecasting at our August statement on monetary policy but it was pretty much where we thought it would come out, given the information we'd come into since then, particularly the monthly CPI indicator, so we thought it was going to be about where it came out,” Ms Bullock said.
The September quarter CPI rose 1.2 per cent and up 5.4 per cent annually, while annual inflation continued to fall from the 7.8 per cent peak in the December 2022 quarter.
Although this was higher than the 0.8 per cent recorded in the June 2023 quarter that saw annual inflation reach 6 per cent, this rise continued to be lower than those seen in 2022, ABS head of prices statistics Michelle Marquardt said.
Meanwhile, all four of Australia’s big banks are now predicting a rate hike of 25 during the November monetary policy meeting to bring the official cash rate to 4.35 per cent.
Westpac Group chief economist Luci Ellis said while inflation is declining, it’s not fast enough for the RBA to continue to hold rate steady due to its “recent rhetoric”.
“We noted that the RBA would leave rates unchanged so long as they saw inflation coming down as they had expected. But if the data flow showed inflation declining slower than that, they would raise rates,” Ms Ellis said.
“This message was reinforced in the Governor’s first speech, on Tuesday, where she said, ‘the board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation.’ The September quarter CPI release was always going to be crucial.
“I’ve seen enough to make my first-ever rate call to be a prediction of a hike.”
ANZ head of Australian economics Adam Boyton said the major bank had highlighted the risk that the RBA will act “either this year or early next” and now think it’s “more likely than not that risk will be realised” on the back of the CPI data.
“Beyond the November meeting we expect the RBA to return to an extended pause. While 4.35 per cent should mark the peak in the cash rate, there is a risk it could tighten beyond that,” Mr Boyton said.
The stronger-than-expected CPI figures swayed the view of Commonwealth Bank of Australia (CBA) economists Gareth Aird and Stephen Wu, who stated that the major bank considers “the lift in underlying inflation over Q3 2023 to be sufficiently strong for the RBA to act on their hiking bias at the upcoming board meeting.”
NAB stood as an outlier among the big four banks in regard to 4.1 per cent being the cash rate peak.
Prior to the October monetary policy meeting, the major bank updated its forecast for the RBA’s final cash rate hike from December 2023 to November 2023.
[RELATED: Q3 CPI shifts cash rate expectations]
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