BRC Retail Sales Index Slips as Households Save Ahead of Christmas

This morning has seen the RBA raise their cash rate by 25bps to 4.35%, meeting expectations and marking the first hike since four consecutive rate pauses. This has also brought the benchmark interest rate to its highest level since 2011. While the latest inflation data from Australia indicates that headline CPI eased from 6% to 5.4%, it nonetheless remains well above the Bank’s target range of 2-3% and came 10bps above expectations.

The hotter-than-expected inflation data is indicative of the headwinds continuing to face the RBA with Governor Michele Bullock stating that though inflation has “passed its peak but is still too high and is proving more persistent than expected a few months ago”. The statement continued by stating that “since its August meeting, the Board has received updated information on inflation, the labour market, economic activity and the revised set of forecasts. The weight of this information suggests that the risk of inflation remaining higher for longer has increased. While the economy is experiencing a period of below-trend growth, it has been stronger than expected over the first half of the year.” On the topic of growth, the Australian economy grew 0.4% on a quarterly basis over Q2, beating expectations of 0.3%. This marked the seventh consecutive quarter of growth with public investment and government spending supporting much of the expansion.

Hence, it’s evident that the RBA see that stronger-than-expected growth give them some room to raise rates particularly given the context of inflation. In similarity with most other central banks, the statement indicated that the question of further hikes “will depend upon the data and the evolving assessment of risks”.

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