Interest rate speculation steps up this week here and offshore.
Australia’s inflation rate moves to centre stage tomorrow with the December quarter and 2021 calendar Consumer Price Inflation data to be released.
The news will come two days before the results of the first meeting of the US Federal Reserve which many economists think could start the long-awaited campaign of rate rises, although the market overall has March pencilled in.
Moody’s economists think Australia’s consumer price inflation nudged up to 3.3% year-on-year in the fourth quarter on the back of higher fuel and food prices, up from 3% in the September quarter.
The AMP’s chief economist Shane Oliver sees 0.9% quarter on quarter rise for the three months to December and an annual rate of 3.1%, up from 3% previously. At that level the Reserve bank will not be too fussed when it meets a week tomorrow for the first time in 2022.
Dr Oliver says the main drivers are likely to be a 7% rise in petrol prices and a 3% rise in new dwelling costs although the price of fruit and vegetables could be higher than expected after the wet spring and early summer on the East Coast.
Dr Oliver says the RBA’s preferred underlying inflation measures are expected to show a rise 0.8%qoq partly “reflecting bottleneck pressures in the economy which will push annual underlying inflation up to 2.4%yoy.”
“It’s above RBA expectations for a 2.25% year on year yoy rise in underlying inflation and we expect a further rise in inflation pressures this year to be consistent with the start of RBA rate hikes in August,” Dr Oliver said.
Westpac is now predicting six interest rate rises between now and early 2024 – in August 2022, October 2022, March 2023, June 2023, December 2023 and March 2024 – to bring the cash rate from 0.1 per cent to 1.75 per cent.
Westpac chief economist Bill Evans outlined his revised interest rate forecasts last week, saying the bank previously expected the first hike in February 2023, but “developments since then have now prompted us to bring forward that tightening date to the meeting on August 2, 2022”.
“We now expect one hike of 15 basis points in August to be followed by a further hike of 25 basis points in October,” Mr Evans said.