Four upcoming data releases will inform the Reserve Bank’s (RBA) April interest rate decision, when the central bank is expected to either deliver its 11th consecutive rate hike or leave rates unchanged for the first time since April last year.
The key data releases begin on Tuesday with the February NAB Business Survey, followed by the February labour force survey from the Australian Bureau of Statistics (ABS) on Thursday.
These will then be followed by the February retail trade figures on Tuesday, 28 March and the February monthly consumer price index (CPI) indicator on Wednesday, 29 March.
According to Commonwealth Bank (CBA) head of Australian economics Gareth Aird, there are “limitless configurations” of how the collective data may print.
“A stronger than expected set of numbers across all releases will see the RBA hike the cash rate in April. Conversely, a weaker than anticipated set of outcomes will mean the RBA pauses,” he said.
“The difficulty for market participants and the board will be assessing a mixed set of results — some stronger and some weaker than expected. The fallout from the collapse of Silicon Valley Bank (SVB) creates an additional layer of uncertainty ahead of the April board meeting.”
Of the four upcoming data releases, CBA believes that the labour force survey and the monthly CPI indicator will carry the most weight.
“Retail sales and business conditions will be important. But the chief metrics in February are inflation and the unemployment rate,” said Mr Aird.
Labour force survey
While January’s labour force survey showed an unexpected decrease in employment, Mr Aird noted this was largely explained by the greater than usual number of people who were not considered employed but had a job to start in February.
Since these people will show up as employed in the February survey, Mr Aird indicated that a solid lift in employment is to be expected. CBA has forecast an increase in employment of 45,000 people in February, close to the market median forecast of 50,000.
This anticipated increase, Mr Aird said, will almost certainly be accompanied by a lift in the participation rate. Subsequently, a fall in the unemployment rate may not be seen in February.
“Our point forecast is for the unemployment rate to print at 3.7 per cent in February compared to the market median forecast of 3.6 per cent,” he said.
“Monthly labour force numbers bounce around which means it is hard to have high conviction on where the jobless rate will land on any given month. But job vacancies, the best leading indicator of the unemployment rate in the short run, suggest the unemployment rate will be on an upward trend from here.”
The unemployment rate sat at 3.7 per cent in January, up from 3.5 per cent in December.
Monthly CPI indicator
Meanwhile, Mr Aird said that the RBA has elevated the status of the monthly CPI and is now placing significant weight on the indicator when assessing the pulse of inflation.
In a statement following the central bank’s latest interest rate decision, RBA governor Philip Lowe said that “the monthly CPI indicator suggests that inflation has peaked in Australia”.
This indicator came in well below market expectations with a 7.4 per cent rise in the year to January, down from an 8.4 per cent rise in the year to December 2022.
However, due to the indicator’s limitations surrounding how much data is updated each month, Mr Aird said that the February data release would be of particular importance.
“The January monthly CPI only included up to date price information for 62 per cent of the weight of the quarterly CPI. And the updated price information was more heavily skewed towards goods prices,” he said.
“Domestic and household services are only measured in the second month of the quarter. As such, the February monthly CPI indicator will be a timelier barometer of services inflation when compared to the January monthly CPI indicator.”
Rate outlook
In contrast to three of the other big four banks, CBA has forecasted just one more 25 basis point (bp) rate hike from the RBA, which will take the cash rate to 3.85 per cent.
While this move has been pencilled in by CBA for April, Mr Aird said that it still remains a close call as to whether RBA’s decision next month will be a hike or a hold.
“We believe the board would like to pause in their tightening cycle. And we think that would be a prudent move given the lags in monetary policy and the massive amount of already delivered tightening,” he said.
But Mr Aird noted that the aforementioned data releases would need to give the RBA board sufficient confidence that a pause is the appropriate policy response in April.
