Betashares chief economist David Bassanese has indicated that Australia’s January Consumer Price Index (CPI) results present challenges for those hoping the Reserve Bank of Australia (RBA) will hold off on further interest rate increases. The CPI measures changes in the price of goods and services purchased by households.
Bassanese noted the impact of electricity subsidy roll-offs as a key consideration. While the cessation of these subsidies has increased headline inflation, it may also be exerting upward pressure on underlying inflation by influencing overall price distribution. This complicates the picture for the RBA as it assesses the true inflationary pressures within the economy.
“Of greater concern is the broad-based nature of price increases, including across hospitality and housing, which the RBA is likely to attribute to demand factors,” Bassanese stated. The breadth of these increases suggests underlying demand pressures remain a significant driver of inflation.
Looking ahead to the more comprehensive March quarter CPI release, Bassanese suggests the current indicators do not point towards a significant easing of inflationary pressures. He anticipates that if the March quarter shows an inflation gain of 0.8 per cent or higher, the RBA is likely to implement another rate hike at its May policy meeting.
