All eyes on Feb for Aus rates

A rise in headline consumer price inflation has dented hopes of an interest rate cut in Australia in 2024, according to ANZ Research Senior Economist Catherine Birch - but headline inflation and trimmed mean inflation were not strong enough to suggest a hike would be the next move from the Reserve Bank of Australia.

Speaking on the 5 in 5 with ANZ podcast, Birch said the data supported ANZ Research’s view the RBA would keep rates on hold at its upcoming August meeting.

June-quarter inflation data from the Australian Bureau of Statistics showed headline consumer prices lifted 1.0 per cent in the June quarter, in line with the previous three-month period. That took the annual rate of inflation to 3.8 per cent, up from 3.6 per cent, and further outside the RBA’s target band of between 2.0 per cent and 3.0 per cent.

Annual trimmed mean inflation, which is a measure of underlying price pressures, declined to 3.9 per cent from 4.0 per cent. This reduced the risk of the next RBA move being a hike, which markets had been concerned about.

“These results won't be enough to convince the RBA that it can't return inflation to target by 2026 under current policy setting,” Birch told 5 in 5. “Particularly given the backdrop of the ongoing slowdown in the broader economy and the labour market, as well as more central banks shifting to easing mode overseas.”

ANZ Research expects February to be the month the RBA makes its move on cuts. Market pricing now suggests traders agree. 

Birch said it was likely the RBA would want to see a reduction in domestic pressures continue over the second half of 2024 before it considered cutting.

“That's a key reason why we don't see the RBA cutting rates for the first time until February next year,” she said.

Outside Australia, the United States Federal Reserve held rates steady at its August meeting, while the Bank of England lowered its rate by 25 basis points.

You can listen to the podcast to find out more.