Invest
May rate rise on the cards with inflation predicted to hit record high
GSFM is predicting a May rate rise.

May rate rise on the cards with inflation predicted to hit record high
Philip Lowe’s next move hinges on the March quarter CPI release on 27 April, investment strategist Stephen Miller has said.
If some of the early indications of March quarter price pressures show up in the CPI release in April, Mr Miller believes governor Lowe could be forced to retire his “Australia is different when it comes to inflation” mantra and with it, the existing RBA commitment to “patience”.
According to him, the notion that the inflation picture was somehow that different in Australia was never wholly convincing.
“Of course, the Australian economy is different from other developed economies but not sufficiently so that the same laws of supply and demand and their effect on prices do not apply here,” Mr Miller said.
He believes Australia is an example of what the textbooks term a “small-medium open” economy. This, he explained, means accelerating global inflation means accelerating Australian inflation.
“RBA governor Philip Lowe has referenced ‘increasing globalisation’ as keeping a lid on prices. Leaving aside the question as to why ‘increasing globalisation’ has an outsize impact on Australia, the fact is that the political currents are running the other way with a populist backlash against globalisation of markets seeing increasing protectionism, along with increasingly more activist domestic regulatory agendas.
“This will lead to heightened upward pressure on business costs and prices,” Mr Miller said.
NAB recently forecasted core trimmed mean inflation at a whopping 1.2 per cent for the March quarter and 3.4 per cent over the year. According to Mr Miller, if realised, the six-month annualised rate of core inflation would be 4.4 per cent.
This, he noted, is even before the full extent of the price pressures unleashed by the Ukraine conflict have been reflected.
An outcome close to the NAB would again blow out of the water the RBA’s forecasts made in February. The RBA had forecast a peak in core inflation of around 3.25 per cent by mid‑year, which implies quarterly prints of around 0.7-0.8 per cent per quarter.
“The NAB forecast of 1.2 per cent in the March quarter is significantly higher and by mid-year core inflation will be well out of the 2-3 per cent band at closer to 4.0 per cent on an annual basis.”
As such, Mr Miller noted that the NAB forecast, if realised, intensifies the risk of waiting too long; being too “patient”.
“The RBA must by now be keenly aware of this.
“Expect maximum optionality in the governor’s April statement following the board meeting on 5 April. This means retiring ‘patience’ and foreshadowing a May rate rise.”
About the author

About the author


Economy
Commonwealth Bank keeps economic forecasts unchanged after Labor victory
The bank said that a change in government did not currently necessitate a change to its economic forecast nor its interest rate expectations. ...Read more

Economy
New Treasurer outlines Labor’s top economic priorities
Jim Chalmers has indicated that the Labor government will be going through this year’s budget “line by line”. ...Read more

Economy
Markets predict 40 bp rate hike in June
The RBA is expected to lift rates by 40 basis points in June as the employment market continues to tighten. ...Read more

Economy
Unemployment falls to lowest level since 1974
The latest labour force data from the ABS has revealed a fall in unemployment during April. ...Read more

Economy
Latest wages data suggests a June rate rise of 25 bps
The Australian Bureau of Statistics has released the latest wage price index. ...Read more

Economy
RBA says it contemplated a 40 bp hike in May
The RBA considered a 40-basis point rate hike at its May meeting. ...Read more

Economy
June rate rise may put ‘undue angst’ on Aussie households, CBA says
The bank made the claim ahead of two important pieces of data being released this week. ...Read more

Economy
Full employment should be a ‘national priority’, Grattan Institute says
The notion of eradicating unemployment has long been considered unattainable within modern industrialised societies; one of Australia’s leading independent think tanks feels the goal of ‘full emp...Read more

Wrapping up an eventful 2021
Listen now

What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now

Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now

Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now

Economy
Commonwealth Bank keeps economic forecasts unchanged after Labor victory
The bank said that a change in government did not currently necessitate a change to its economic forecast nor its interest rate expectations. ...Read more

Economy
New Treasurer outlines Labor’s top economic priorities
Jim Chalmers has indicated that the Labor government will be going through this year’s budget “line by line”. ...Read more

Economy
Markets predict 40 bp rate hike in June
The RBA is expected to lift rates by 40 basis points in June as the employment market continues to tighten. ...Read more

Economy
Unemployment falls to lowest level since 1974
The latest labour force data from the ABS has revealed a fall in unemployment during April. ...Read more

Economy
Latest wages data suggests a June rate rise of 25 bps
The Australian Bureau of Statistics has released the latest wage price index. ...Read more

Economy
RBA says it contemplated a 40 bp hike in May
The RBA considered a 40-basis point rate hike at its May meeting. ...Read more

Economy
June rate rise may put ‘undue angst’ on Aussie households, CBA says
The bank made the claim ahead of two important pieces of data being released this week. ...Read more

Economy
Full employment should be a ‘national priority’, Grattan Institute says
The notion of eradicating unemployment has long been considered unattainable within modern industrialised societies; one of Australia’s leading independent think tanks feels the goal of ‘full emp...Read more