New Australian inflation figures bolster expectations of further rate hikes in 2023

The Australian economy could face another rate hike in February and in the months to come as higher-than-expected inflation makes it more likely that the central bank will take further action.

up to date Australian Bureau of Statistics Data show annual inflation will reach 7.8% in the December quarter 2022, up from 7.3% in the last three months.

This is also the highest consumer price index (CPI) growth since 1990.

In terms of quarterly growth, inflation rose by 1.9% in the three months to December 2022, up from 1.8% recorded in the last two quarters, but still grew at 2.1% in the March quarter. was lower than

Among the consumer price index categories, domestic holiday travel and accommodation increased the most at 13.3%, followed by electricity at 8.6% and international travel and accommodation at 7.6%.

Full-year inflation in December beat market expectations of a 7.6% rise, but fell short of the Reserve Bank of Australia’s (RBA) forecast of an 8% rise over 2022 as a whole.

Moreover, the underlying inflation rate, a key economic indicator that measures inflationary pressure driven primarily by market forces, rose to 6.9% from 6.1% previously.

Treasury secretary says inflation is unacceptably high

Following the release of ABS data, Treasury Secretary Jim Chalmers said inflation was very high by historical standards.

“It’s no use pretending otherwise. It’s unacceptably expensive.” He said Reporter.

“This is in line with the Treasury Department’s inflation projections, and about the same as the Reserve Bank’s inflation projections.”

The finance official also said inflation was likely to peak, but said this could only be confirmed when figures for the March quarter were released.

“Inflation is the defining challenge for our economy in 2022 and will be the defining challenge for our economy in 2023,” Chalmers said.

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Federal Treasurer Jim Chalmers speaking at the Houses of Parliament in Canberra, Australia, July 28, 2022 (Martin Ollman/Getty Images)

He added that while the government is optimistic about the future of the country and economy, it is realistic about the current cost of living pressure and the impact of rising interest rates.

As for electricity prices, Chalmers said he was not surprised by the 8.6% rise recorded in the three months to December.

However, he stressed that government price caps and other interventions will limit power price increases in the coming months.

According to the head of ABS price statistics Michelle Marquardtthe increase in electricity prices last quarter was largely due to the cancellation of a $400 (US$285) electricity credit in Western Australia.

Economists predict further rate hikes in coming months

With underlying inflation well above the RBA’s forecast of 6.5%, many economists expected the central bank to continue its rate hike cycle through 2023.

Surin Ong, chief economist at RBC Capital Markets, said the RBA wasn’t expecting inflation to be this high in the December quarter and may be concerned about services inflation, which has climbed to 5.5% a year. said to be of high quality.

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A store clerk prepares grapes for sale at Paddy’s Market in Sydney, Australia, 22nd October 2022. (Lisa Maree Williams/Getty Images)

She further said the demand side of the economy remains strong as consumers continue to spend heavily on leisure and travel.

In a comment obtained by AAP, Ong said, “We continue to highlight the delayed impact of higher wages and labor costs on service inflation, which could lead to more demand in the future.”

Given the impact of the new CPI figures on the RBA’s future interest rate decisions, chief economists forecast a further 0.25% rise in February and March, raising the official cash rate to 3.6% from the current 3.1%. .

Christian Baylis, founder and chief investment officer of Fortlake Asset Management, also expects a 0.25% rise in February.

Nonetheless, he predicted that the RBA would push the monetary tightening cycle further.

“I think we are almost certain to see a 25 basis point increase in February, after which we should expect another 2-3 basis points increase towards that 4% level.” He said Seven news.