The minutes from the recent Reserve Bank of Australia (RBA) meeting highlighted that, although the RBA had maintained the current rate, it contemplated a 25 basis points hike and underscored the possibility of further tightening.
Consequently, AMP’s chief economist, Shane Oliver, anticipates that the likelihood of another rate hike in the coming months is heightened, especially in light of the potential for a near-term increase in inflation due to rising petrol prices and the upward potential in wage growth.
In his latest update, Dr Oliver said that, considering these risks, AMP has revised its expectation for the first rate cut, pushing it from around March next year to June.
“The continuing surge in global oil prices to back above US$90 may be more of a threat to growth than inflation,” Dr Oliver said.
While this is inflationary and will worry central banks globally, he highlighted that the situation still differs greatly to that seen 18 months ago when prices were rising on the back of a post-lockdown reopening.
“The reopening boost is well behind us, so this time around, the surge in oil prices may act as more of a tax on spending and hence as a dampener on growth, which in turn could limit how far oil prices rise – although another production cut from Russia designed to hurt the West over its support for Ukraine is a high risk,” Dr Oliver explained.
“On our estimates, the average weekly household petrol bill in Australia has now increased by $10 since its recent low in May as petrol prices have pushed to record levels and this will mean a further reduction in household spending power. And so, our broad view remains that the trend in inflation will remain down.”
With the monthly consumer price inflation indicator set to be released on Wednesday, Dr Oliver predicted it will likely show a rise to 5.3 per cent year-on-year from 4.9 per cent, reflecting a 9 per cent rise in petrol prices.
Similarly, Westpac on Monday said it is forecasting a 0.6 per cent CPI increase in August that would take the annual pace to 5.2 per cent, on the back of an expected 8.6 per cent increase in petrol prices.
Earlier this month, the RBA admitted that it considered both the option of hiking rates and keeping them on hold at its September meeting, with the latter eventually prevailing.
According to the bank, the argument to raise the cash rate by a further 25 basis points hinged on the recent increase in petrol prices, which is a key input for households’ inflation expectations.
“Fuel prices had increased sharply in August. By itself, this would boost headline inflation in the September quarter, relative to expectations in early August,” the RBA said, but decided at the time that inflation was still expected to continue to moderate.
The RBA’s next meeting on 3 October will be the first to be overseen by new governor Michele Bullock.
