Thursday, December 1 2022

Economists at Australia’s major banks are changing their minds on the timing of the first official exchange rate hike in a decade, with the focus now on the Reserve Bank’s June 7 board meeting.

A modest 0.15 percent increase in the cash rate is expected at this meeting to 0.25 percent, but with further increases of 0.25 percent in the second half of the year.

“Critically, this week’s statement from the Board of Directors (RBA) revealed a shift, removing any reference to a desire to be ‘patient’, instead focusing on evaluating data over the course of” coming months,'” said Alan Oster, chief economist at National Australia Bank.

By June, the meeting will have seen the Consumer Price Index, Wage Price Index and National Accounts for the March quarter, which should show wage pressure building and price increases have become widespread.

The wage and inflation figures will be released at the height of a federal election campaign, soon to be called by Prime Minister Scott Morrison.

Westpac Chief Economist Bill Evans also advanced his forecast for rate hikes starting in August.

“We have revised down our forecast for the unemployment rate, which is now expected to reach 3.25% by the end of the year, from 3.75% previously forecast,” Mr Evans said.

“This much tighter labor market in turn points to a stronger increase in wage growth in 2023 with a peak of 4% now expected compared to our previous peak of 3.5%.”

Weak wage growth to date is one of the factors that has prevented the RBA from changing interest rates sooner, even though inflation has already picked up.

Some economists expect next week’s labor force figures for March to show the unemployment rate falling below 4% for the first time since 1974, and faster than expected by the RBA and Treasury .

Payroll employment figures, a guide to the full Labor Force report, rose 0.2% in the fortnight to March 12, after falling 0.8% in the second half of February.

The Australian Bureau of Statistics’ head of labor statistics, Bjorn Jarvis, said the findings coincided with adverse weather and flooding in New South Wales and Queensland in late February.

The ABS also reported on Thursday a sharp tightening of Australia’s trade surplus in February to $7.5 billion from a downwardly revised $11.8 billion in January.

Imports of consumer goods jumped 17% in the month, while total exports were barely changed from the previous month, as higher coal shipments were offset by lower iron ore exports.

“Import demand is an encouraging development for domestic consumption and aligns with our view that household spending will remain robust in 2022 as low unemployment and high savings support sales growth,” Tom Kennedy said. , an economist at JP Morgan.

Meanwhile, growth in Australia’s service sector slowed in March as price pressures and staff shortages took their toll.

The Australian Industry Group’s services performance index fell 3.8 points to 56.2 in March, although it was still above the 50-point mark that separates expansion from contraction .

“Australia’s services sector continued its positive run in March, although the pace of growth slowed in the face of mounting input price pressures, difficulties in finding staff and new wage pressures,” it said. said Innes Willox, chief executive of Ai Group.

“The sharp increase in new orders reported in March will see the capacity of many businesses stretched over the coming months, while the availability of staff and the supply of inputs are expected to remain constrained.”


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