WATCH: inflation, rates & February

Economic growth in Australia should pick up in the second half of calendar 2024 – but don’t expect that pick up to be strong.

ANZ Research expects a lift in household incomes from the government’s stage-three tax cuts and cost-of-living measures will boost spending enough to help Australia’s gross domestic product grow ever so slightly in the second half compared to the first half of 2024.

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Those cost-of-living measures will also put downward pressure on inflation in the third quarter, to the extent headline inflation could even be zero in that period. But that doesn’t mean an early interest rate cut.

What it does mean is the Reserve Bank of Australia will be more focussed on the core measure of inflation, the trimmed mean – although that too is unlikely to be within the central bank’s target band until 2025.

But that downward force on inflation, combined with a higher unemployment rate, should be enough to get the RBA cutting in February. That estimate is further out than ANZ Research’s previous forecast of November, due largely to three key factors.

The first is that inflation has been a bit more persistent. The second is ongoing contributions to both growth and employment growth from government spending supporting the economy.

And finally, there are only two quarterly inflation readings between now and the November RBA meeting. ANZ Research does not think there will be enough time for the central bank to be reassured inflation is going to get back to target and stay there.

November just seems a little too early for rate cuts to be starting in Australia. Indeed, given the most recent monthly CPI indicator there now a risk the RBA could tighten in coming months. That’s not ANZ Research’s base case, however.

Adam Boyton is Head of Australian Economics at ANZ

The ANZ Research report “ANZ Research Quarterly: striving towards a new normal(isation)”, published June 25, 2024, is available now.