RBA Rate Cut Odds Collapse On Hot Inflation

Matt Bell from Oliver Hume states that Australia’s latest consumer price index data shows inflation rising to 3.8% year-on-year, surpassing market expectations and the Reserve Bank of Australia’s own forecasts. Bell highlights that this unexpected inflation spike has significantly diminished the likelihood of further interest rate cuts, pushing market odds for a reduction in the cash rate close to zero for next year. He notes that while some forecasters see potential for labour market easing, which could eventually support lower rates, most will need to revise their projections given the strength of the latest data.

Bell points to housing as a key factor driving inflation, with housing costs representing a significant portion of the inflation basket, and notes that rent and other components also contribute to the upside surprise. He explains there is some initial complication interpreting this first release of the comprehensive monthly CPI from the ABS, but expresses confidence that market participants will soon view these monthly numbers as robust and crucial for future policy decisions.

On the property market, Bell observes that previous rate cuts are still flowing through, but the unexpectedly strong consumer activity and tight labour market underpin resilience in housing demand. He expects ongoing supply-demand imbalance to support prices, warning that Australia’s high population growth and persistent undersupply of new housing will keep property values elevated, especially without anticipated further rate cuts.

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