RBA should hike in November on higher inflation
Underlying inflation is tracking well above the RBA's forecast profile
The RBA board should hike in November because underlying inflation is tracking well above the RBA’s forecast profile.
The RBA meets on 7 November and seems likely to resume raising rates, increasing the cash rate by 25bp to 4.35% in response to a “material” upside surprise to underlying inflation.
The trimmed mean CPI, which is the RBA’s preferred measure of underlying inflation, rose by 1.2% in Q3 after an upwardly-revised increase of 1.0% in Q2 (previously 0.9%), with the monthly CPI pointing to a 1.1% increase in Q4 if the ex-volatile/transport CPI continues to grow at the same rate over the next few months as it did in September.
These outcomes and estimated trajectory are both well above the RBA’s current forecast profile that staff will update over the next week or so.
That is, in August, the RBA had a 0.9% starting point for the Q2 trimmed mean CPI and were implicitly forecasting quarterly increases of 0.9% in Q3 and 0.8% in Q4, such that annual underlying inflation had been expected to slow to 3.9% by the end of this year.
Instead, based on today’s numbers and the assumption that monthly inflation holds steady at its September pace, annual underlying inflation looks likely to end the year at about 4½%.
There is still some lingering uncertainty over whether Governor Bullock will follow her predecessor in failing to match tough talk on inflation with higher interest rates, although given she has been explicit this week in expressing concern about upside risks to inflation, policy inaction would dent the RBA’s credibility.
Note that Governor Bullock has the opportunity to signal her policy preference to the market in tomorrow's parliamentary testimony.
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
........
Investment Disclaimer
Past performance does not assure future returns. All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. This information has been prepared by Coolabah Capital Investments Pty Ltd (ACN 153 327 872). It is general information only and is not intended to provide you with financial advice. You should not rely on any information herein in making any investment decisions. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The Product Disclosure Statement (PDS) for the funds should be considered before deciding whether to acquire or hold units in it. A PDS for these products can be obtained by visiting www.coolabahcapital.com. Neither Coolabah Capital Investments Pty Ltd, Equity Trustees Ltd (ACN 004 031 298) nor their respective shareholders, directors and associated businesses assume any liability to investors in connection with any investment in the funds, or guarantees the performance of any obligations to investors, the performance of the funds or any particular rate of return. The repayment of capital is not guaranteed. Investments in the funds are not deposits or liabilities of any of the above-mentioned parties, nor of any Authorised Deposit-taking Institution. The funds are subject to investment risks, which could include delays in repayment and/or loss of income and capital invested. Past performance is not an indicator of nor assures any future returns or risks. Coolabah Capital Investments (Retail) Pty Limited (CCIR) (ACN 153 555 867) is an authorised representative (#000414337) of Coolabah Capital Institutional Investments Pty Ltd (CCII) (AFSL 482238). Both CCIR and CCII are wholly owned subsidiaries of Coolabah Capital Investments Pty Ltd. Equity Trustees Ltd (AFSL 240975) is the Responsible Entity for these funds. Equity Trustees Ltd is a subsidiary of EQT Holdings Limited (ACN 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT).
Forward-Looking Disclaimer
This presentation contains some forward-looking information. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. Although forward-looking statements contained in this presentation are based upon what Coolabah Capital Investments Pty Ltd believes are reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Coolabah Capital Investments Pty Ltd undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.
3 topics
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Comments
Comments
Sign In or Join Free to comment
most popular
Equities
The 7 zombie companies lurking on the ASX 300
Livewire Markets