The prospect of an interest rate hike by the Reserve Bank of Australia (RBA) next week has firmed following the release of the December quarter trimmed-mean CPI inflation figure of 3.3 per cent, according to BDO chief economist Anders Magnusson. BDO is an accountancy and business advisory firm providing audit, tax and consulting services to companies across various industries. According to Magnusson, the latest data reinforces the message from the September quarter that underlying price pressures are proving more persistent than initially expected.
“With inflation now overshooting the bank’s forecast for two consecutive quarters, the likelihood of a rate hike has increased substantially. Markets were already pricing a significant chance of tightening, and today’s result will only strengthen that expectation,” Magnusson stated. He further noted the tight labour market provides the RBA with room to act, saying that with unemployment still low and the economy operating near capacity, the risk of higher interest rates jeopardising full employment is diminished.
Magnusson emphasised the RBA does not shift into a tightening cycle lightly. Should the RBA lift rates next week, it would signal a view that long-term inflation dynamics are emerging, rather than just a temporary overshoot. “That would mark a meaningful shift in the monetary policy cycle,” he concluded, highlighting the significance of any potential action taken by the central bank.
