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RBA forecasts inflation peak in June

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Inflation is forecast to peak at 3.75 per cent in June.

The Reserve Bank of Australia (RBA) has predicted CPI inflation to peak at 3.75 per cent in June.

In its latest Statement on Monetary Policy published on Friday, the RBA revealed its new inflation forecast is well above previously anticipated figures.

The bank had earlier predicted inflation would sit comfortable below 3 per cent, at 2.75 per cent, by mid-year. 

According to the bank, while it still expects inflation to moderate, it has raised its forecasts led by increases in the prices of new dwellings.

“The forecast profile for underlying inflation is noticeably higher in the near term, reflecting stronger pass-through of upstream cost pressures to consumer prices than was assumed in the November statement,” the RBA explained.

The bank is confident CPI inflation won’t sit at 3.75 per cent for long, instead predicting it to slide to 3.25 per cent by December this year, before landing at a steady 2.75 per cent in June next year, where it is tipped to remain into 2024.

The RBA is predicting trimmed mean inflation to sit slightly below headline inflation, peaking at 3.25 per cent before settling at 2.75 per cent where it would remain until June 2024.

Economists, however, are concerned.

In his usual weekly market update, AMP’s Shane Oliver is worried that the RBA’s preparedness to be patient could be dangerous.

RBA is running the risk of waiting too long to start monetary tightening which in turn will then risk allowing much higher inflation to become entrenched as inflation expectations increase, making it harder to get back under control again,” Mr Oliver said.

And while the RBA has made it clear it is targeting a 2023 rate hike, Mr Oliver is confident that its “patience” will only last six months or so.

“With numerous indicators pointing to rising wages growth, amidst ongoing reports of staff shortages, it’s likely to surprise to the upside sooner than the RBA is allowing. As such, we maintain our view that the first-rate hike will come in August taking the cash rate to 0.25 per cent, followed by a second hike in September to 0.5 per cent,” he said.

The central bank also revised its GDP expectations on Friday, predicting growth of 5 per cent this year.

The unemployment rate too is expected to sink below 4 per cent much sooner than anticipated. If the RBA’s predictions are correct, Australia will experience its strongest jobs market in half a century by December 2022 when unemployment is tipped to decline to just 3.75 per cent.

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.