Bendigo and Adelaide Bank: August Economic Update
With Australians rejoicing after another RBA rate pause, how long will it last? David Robertson shares his economic thoughts and forecasts in these fluid and volatile market conditions.
While the latest reprieve from further RBA rate hikes was well anticipated after the better-than-expected quarterly CPI numbers, and the fall in retail sales in June, Bendigo Bank’s Chief Economist says the growing market expectation of no more RBA hikes may be premature.
“While other central banks have kept hiking rates in the last few weeks including the US, Canada, and the Bank of England, leaving a widening gap between our 4.1% cash rate and the rest of the pack - the market expectation now is for just one or potentially no more RBA hikes,” Mr Robertson said.
“Our expectation is for one more increase, potentially in November after the next quarterly inflation numbers, but very much data dependent. With greater confidence we continue to suggest rate cuts are unlikely until 2025 and will be predicated on core inflation returning to below 3%.
“The second quarter inflation numbers were encouraging, with the Consumer Price Index down to 6% - and only 0.8% for the quarter, on the right track back towards the 3 percent target.
“Core inflation also fell to 5.9%, but the challenge for incoming RBA governor Michele Bullock is how long it will take to get back to target, especially with services inflation heading in the wrong direction as opposed to goods inflation, a trend being seen in similar economies overseas,” Mr Robertson said.
Mr Robertson also shared his thoughts on economic growth, unemployment, and the Aussie dollar.
“We still expect very slow real economic growth in this new financial year, and a steady increase in the unemployment rate due to higher interest rates, however the latest jobs data was remarkably strong, showing the resilience of our economy, Mr Robertson said.
“Unemployment fell again to just below 3.5% in June and has yet to be impacted by the recent surge in net migration and population growth - another sign of the ‘longer lag’ in this tightening cycle compared to more normal economic conditions. But this adds another complication to RBA policy settings, with its implications for services inflation.
“Having record levels of employment is a helpful factor as the economy slows, but we still need a lift in labour productivity to make real wages growth sustainable.
“And lastly, the Aussie dollar once again failed to break the 69-cent barrier in July, so is now testing the lower end of the recent 64 ½ to 69 cent band. Further policy announcements out of China will be very relevant on this front, given their implications for our export markets,” Mr Robertson concluded.
Watch David’s online economic update.
