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‘Very low risk’ of RBA pause after monthly CPI increase

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By Reporter
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4 minute read

The ABS has released its monthly inflation indicator for November.

The monthly consumer price indicator (CPI) increased by 7.3 per cent in the year to November 2022, slightly above consensus expectations for a 7.2 per cent rise.

According to the Australian Bureau of Statistics (ABS), housing was the main contributor to the annual inflation increase seen in the November monthly indicator.

“This month’s annual movement of 7.3 per cent compares to 6.9 per cent in October and 7.3 per cent in September, indicating ongoing inflationary pressures,” said ABS head of prices statistics Michelle Marquardt.

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ANZ senior economist Adelaide Timbrell said that the inflation data, combined with the 444,200 job vacancies reported by the ABS for November, meant that there was a very low risk of a pause by the Reserve Bank (RBA) next month.

“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 said.

Ms Timbrell stated that the monthly indicator was broadly in line with ANZ’s forecast for a fourth-quarter annual inflation rate of 7.8 per cent.

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

“Trimmed mean inflation, at 5.6 per cent y/y, was only 0.1 ppt above our pick. 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.”

In contrast, HSBC chief economist Paul Bloxham argued that, while it may seem like the case for the RBA to hike further has been strengthened, the situation is not so clear cut.

“In our view, the February RBA meeting is still in play. The RBA could choose to focus on inflation and lift the cash rate further,” he said.

“On the other hand, the global slowdown, weakening global inflation, early signs of some cooling of the local labour market and acknowledgement that much of the impact of the 300bp of the RBA's tightening to date has yet to work through the economy, could see the RBA choose to pause (our central case).”

The ABS will release its CPI data covering the fourth quarter and the month of December on 25 January, ahead of the RBA’s first interest rate decision of the year on 7 February.

Biggest contributors to inflation uptick

Food and non-alcoholic beverages (+9.4 per cent), transport (+9.0 per cent), furniture, household equipment and services (+8.4 per cent), and recreation and culture (+5.8 per cent) were all major contributors to the annual rise alongside housing (+9.6 per cent).

“High labour and material costs contributed to the annual rise in new dwelling prices (+17.9 per cent) although the rate of price growth for new dwellings has eased compared to the 20.4 per cent annual rise seen in October,” said Ms Marquardt.

The ABS reported that prices for food and non-alcoholic beverage categories remained elevated compared to November 2021, with increasing operating costs, including wages, electricity, and weather-affected reductions in food supplies continuing to drive prices up.

Meanwhile, for transport, Ms Marquardt highlighted some flow-on impact from the restoration of the Australian government’s fuel excise in November’s higher automotive fuel prices.

“These rose 16.6 per cent in the year to November up from 11.8 per cent in October. Average prices for unleaded petrol peaked at just over $2 in early November before falling to just under $1.80 by the end of November,” she said.

‘Very low risk’ of RBA pause after monthly CPI increase

The ABS has released its monthly inflation indicator for November.

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