NAB’s very preliminary forecast for Q2 Trimmed Mean CPI is 0.9% q/q, one tenth above the RBA’s May SoMP forecast of 0.8%. We think this is enough to keep the RBA on the sidelines given their evident concerns on activity. However, should inflation print higher and suggest persistence within services, the RBA is clearly willing to contemplate hiking again. There is a lot of water to go under the bridge between now and Q2 CPI, including the second month CPI indicator (26 June) as well as employment (18 July) and retail sales (1 July and 30 July)
NAB since early 2024 has been of the view that the RBA would be on hold until late 2024, having pencilled in November for the first interest rate cut. We retain that view given our forecasts for the economy are for subdued demand to see the labour market loosen a little more than the RBA expects in the near term (NAB’s end 2024 unemployment rate forecast is 4.5% vs. RBA’s May SoMP of 4.2%). Risks remain that the first cut may not occur until early 2025, and there remains a genuine tail risk that the RBA may feel compelled to hike should Q2 CPI force a further upward revision to the RBA’s inflation outlook.
-NAB
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