Inflation will force RBA's hand ... but not today

by Adam Smith03 Jun 2014
Rising inflation is likely to force the RBA's hand on rates, though it is unlikely to move today.

The TD Securities - Melbourne Institute Monthly Inflation Gauge has risen by 0.5% in May, following on a 0.4% rise in April. In the 12 months to May, the Inflation Gauge has risen by 2.9%, putting inflation toward the top of the Reserve Bank's 2-3% target band.

TD Securities head of Asia-Pacific research Annette Beacher said the consecutive rises in the gauge show that inflationary pressures remain "sticky".

Beacher said TD Securities has pushed back its prediction for a rate hike, but that the market should expect a tightening cycle eventually as inflation remains a concern.

"While we may have pushed out the beginning of our expected tightening cycle from November to March 2015, upside to price and activity data speaks to us that the market remains too complacent by not pricing any rate rises over the next twelve months,” Beacher said.


  • by Giles 3/06/2014 11:43:49 AM

    Inflation - is a very broad gauge, and some analysis needs to go into what components of the overall inflation result are increasing before crowing about the need for rate rises. A break out of wages and incomes should maybe prompt a rise in rates, but our wage grow is at the lowest levels in many years. Unemployment is increasing. Under employment is rampant. Inflation caused by a lower AUD, increases in petrol prices, tax increases (cigarettes, bracket creep, stamp duties), utilities, food (ie our banana crisis, droughts or floods) should trigger cuts in rates or further risk economic growth. Reports from economists are interesting to consider, but its more of what they don't say or what barrow they are pushing that is of interest. There is a very vocal group wanting interest rates to start rising, as this is where they make their profits.