The one critical number to watch for an August Reserve Bank Australia interest rate hike

July 7, 2024 10:33 pm

Let me first jump to CBA’s conclusion on what to watch ahead:

  • We expect a Q2 trimmed mean CPI of 0.9%/qtr or less would see the RBA leave the cash rate on hold in August (our forecast is 0.9%/qtr).
  • An outcome of 1.1% /qtr or above would mean an August rate hike is more likely than not.
  • We believe a Q2 2 4 trimmed mean CPI result of 1.0%/qtr is in the ‘grey zone’ and other important data to be released over coming weeks would feed into the decision as to whether to raise the cash rate or not in August. June labour force survey (due 18/7) is also a critical piece of economic data.

The official CPI data from Australia is due on July 31 (11.30 am Sydney time, 0130 GMT, 2130 US Eastern time (on July 30 US time)). The Reserve Bank of Australia meeting follows on August 5 and 6 (decision due at 2.30 pm Sydney time, 0430 GMT, 0030 US Eastern time).

A note from analysts at the Commonwealth Bank of Australia says market participants need to watch both headline CPI and trimmed mean CPI from Australia this year and next, both are equally as important. More:

  • The expected materially lower headline CPI outcomes from Q3 2 4 will help to both anchor inflation expectations as well as limit price rises for administered charges in 2025 that are linked to actual CPI outcomes.
  • Lower headline CPI will also put downward pressure on wages growth in 2025 given the rate of headline inflation is often used as a starting point in a lot of wages negotiations.
  • That said, in the very near-term market participants will be firmly focussed on the Q2 trimmed mean CPI (due 31/7).

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