Yesterday we had better-than-expected (headline) inflation data from Australia:

This trimmed back expectations for a rate hike from the Reserve Bank of Australia at their next meeting, coming up on July 4. Not everyone shares that assessment though:

National Australia Bank has reaffirmed its forecast for a July hike also:

  • the Monthly CPI Indicator showed still very strong inflation pressures despite the headline miss (5.6% y/y vs. 6.1% expected). The core measure the RBA looks at is the ‘excl. fuel, fruit and vegetables, and travel’ which fell only marginally to 6.4% y/y from 6.5%, and in seasonally adjusted terms was unchanged at 6.5%.
  • While the Monthly Indicator is not the full CPI, what detail we do have shows services inflation looks sticky (as it has been offshore) and further demonstrates the risks the RBA has noted on shifting firm pricing behaviour and to their forecasts for 3% inflation by mid-2025.
  • In summary the RBA will need to do more and NAB still sees the RBA hiking rates to 4.60%, pencilling in July and August

Nab do sound a note of caution based on the recent experience of the RBA:

  • The RBA’s bias argues towards a hike in July, though their April instinct to pause in anticipation of a full forecast update and full quarterly CPI before delivering a hike in May is a precedent that makes July less certain.


I noted yesterday another factor that may tip the scales to a hike:

Reserve Bank of Australia Deputy Governor Bullock spoke last week, and she was hawkish indeed:

Reserve Bank of Australia Deputy Governor Bullock

Reserve Bank of Australia Deputy Governor Bullock