Economists at the nation’s biggest bank now expect the Reserve Bank of Australia will start lifting the cash rate in June, rather than their earlier prediction of a move in August.
Commonwealth Bank senior economist Gareth Aird is anticipating inflation to be a lot stronger than the RBA is forecasting, which will lead to a rise in the cash rate to 0.25 per cent from a record low 0.1 per cent at the June board meeting.
RBA governor Philip Lowe has indicated he would want to see a couple more quarterly inflation reports before lifting the cash rate, which would be consistent with a move in August.
The March quarter consumer price index is due on April 27 and the June quarter report is released on July 27.
“But the RBA’s forecast for inflation is different to ours,” Mr Aird said.
The RBA has forecast underlying inflation to be 3.25 per cent by mid-2022, implying increases of 0.75 per cent in both the March and June quarters.
However, CBA is expecting a 1.2 per cent increase in the March quarter alone, taking the annual rate to 3.5 per cent and well above the RBA’s two to three per cent target.
Mr Aird is expecting a further three rate increases over 2022 to take the cash rate to one per cent, with another move to 1.25 per cent in early 2023.
The RBA stuck to the line that it intends to be patient before lifting the cash rate for the first time in a decade in the minutes of its February 1 board meeting released on Tuesday.
However, better-than-expected progress has been made on its goals for employment and inflation, which is why the board decided to end monetary support through its bond buying program this month.
But the minutes reaffirmed its members are yet to convinced that the pick-up in inflation will be sustained.
“Wages growth also remained modest and it was likely to be some time before aggregate wages growth would be at a rate consistent with inflation being sustainably at target,” the minutes say.
Even so, the minutes note the unemployment rate was at its lowest level since 2008 and underlying inflation was in the middle of the target range for the first time since 2014.
Meanwhile, the planned reopening of international borders and signs the Omicron variant peak has passed have helped lift the mood of Australians, despite record petrol prices and the potential for higher interest rates.
The latest ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – jumped 3.3 per cent to 101.3, its biggest weekly gain since April 2021.
“The passing of the Omicron peak, along with the news that international borders will reopen to vaccinated tourists later this month, no doubt helped lift sentiment despite rising petrol prices,” ANZ head of Australian economics David Plank said.
The national average petrol price gained a further five cents a litre to a new peak of 176.9 cents last week, with even higher prices recorded in Melbourne, Hobart, Canberra and Perth.
“Although confidence rose above the neutral level of 100, it is still well below its long-run average, so we can’t say higher inflation isn’t having an impact,” Mr Plank said.
Consumer inflation expectations rose 0.2 percentage points in the past week, returning to a recent seven-year high of five per cent.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)