Australian households are being warned of back-to-back interest rate hikes as the RBA waits on a crucial inflation figure.
Economists will get the latest snapshot of Australia’s inflation woes on Wednesday, and the number is predicted to come in higher than the RBA’s expectations.
Betashares chief economist David Bassanese warns any increase to the trimmed mean inflation rate could force the RBA to move on rates.
“The market expects the quarterly gain in trimmed mean inflation to be 1.0 per cent, which would meet (RBA deputy governor Andrew) Hauser’s definition of a ‘materially worse’ outcome than the bank’s 0.8 per cent forecast in August,” he said.
“To my mind, that should be enough to cement the case for a November interest rate hike, even though the bank arguably already delivered a pre-emptive rate hike in September in response to ‘materialising’ upside inflation risks.”
The RBA will get the critical inflation figure at the same time as executives are in senate estimates on Wednesday, with traders closely watching any reaction from the central bank’s top brass.
In August, the central bank expected headline inflation to be about 3.9 per cent, but it came in at 4.0 per cent.
So far in its rate-hiking cycle, the RBA has lifted the cash rate four times in six meetings by a total of 100 basis points. It has climbed from 3.60 to 4.60 per cent.
If the RBA lifts the cash rate in November, it would be the fifth interest rate hike in the seven meetings this year.
Markets were pricing just a 27 per cent chance of an interest rate hike last week before RBA senior officials spoke at public gatherings.
Now the money market is placing a more than 60 per cent chance of an RBA rate hike on Melbourne Cup day next Tuesday.
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Mr Bassanese said despite the RBA claims that it didn’t give forward guidance, recent comments had rarely been clearer.
“In comments (last week), deputy governor Andrew Hauser indicated the bank continued to face ‘difficult choices’ in balancing the upside risks to inflation expectations if it did not raise rates against the downside risks to economic growth if it did,” he said.
Citing Mr Hauser’s comments, Mr Bassanese said the RBA now conceded inflation would be “materially worse” than its expectation in the August Monetary Policy Statement.
On 60 Minutes, RBA chief economist Sarah Hunter also reinforced the message, saying the pain is real for households but the bank needs to do what is required to control inflation.
“It’s really, really tough. It does weigh on us here. It does weigh on the board,” Ms Hunter said.
“But we’ve got to get inflation out for the good of everybody.”
The RBA’s position is higher interest rates put pressure on household budgets, reduces spending and over time leads to cooling inflation.
Ms Hunter defended the method of hiking interest rates, saying it has lowered inflation in the past.
“There’s no painless tool, but this tool does work, and that’s why we use it,” she said.
EQ economics managing director Warren Hogan told News24 that the RBA’s leadership had been “relentless” in reinforcing the message that inflation was simply too high.
“They’ve been quite active in what is called open-mouth operations and that is speaking to the community,” he said.
“I think more than anything they are giving us a strategic message that interest rates aren’t high enough to get inflation under control and they have to make some difficult decisions in the short-term that will probably start next week on Melbourne Cup day with a 25 basis point rate hike.”
Mr Hogan said next week was a “slam dunk” for a rate hike but wouldn’t rule in or out further interest rate hikes.