Australia & New Zealand

Australia CoreLogic House Prices (Sep.)

House prices have continued to surge despite the recent lockdowns. But we expect house price growth to slow next year as affordability constraints bite and macroprudential limits are imposed.
Ben Udy Australia and New Zealand Economist
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RBA Watch

Surge in inflation will prompt first rate hike in August

The rapid tightening of the labour market coupled with the acceleration in underlying inflation will prompt the Reserve Bank of Australia to end its asset purchases at its meeting on Tuesday 1st February. And we now expect the Bank to hike rates to 1.25% by end-2023, with the first hike coming in August. Drop-In (08:00 GMT, 26th Jan): Will the RBA follow the Fed this year? Economists from our Australia and Markets services will talk through the likely path of RBA policy making in 2022 and the implications for Australian bond and currency markets. Register here.

25 January 2022

Australia & New Zealand Data Response

Australia Consumer Prices (Q4 2021)

The strong rise in underlying inflation at the end of last year means the RBA is all but certain to end its asset purchase scheme at its meeting next week. And with underlying inflation now above the mid-point of the RBA’s target, the Bank will come under increasing pressure to hike rates this year.  

25 January 2022

Australia & New Zealand Economics Weekly

RBA to hike rates this year

The fall in the Australian unemployment rate to 4.2% in December means the labour market is now the tightest it has been since 2008. That all but confirms our forecast that the RBA will end its asset purchase programme at its February meeting. And we now think wage growth will rise to 3% by the end of the year. With inflation set to accelerate faster than the RBA has been anticipating, we have brought forward our forecast for the first rate hike from February 2023 to November this year.  

21 January 2022

More from Ben Udy

Australia & New Zealand Chart Book

Early signs of second-round effects from soaring prices

The RBA expects headline inflation to drop back from 3.8% in Q2 to 1.5% by mid-2022. By contrast, we now only expect it to fall to 2.5% over this period, reflecting the pass-through from soaring coal, gas and food prices. We also expect the recent weakening of the Australian dollar and the surge in shipping costs to lift “core” goods inflation. The Bank may be able to ignore even a lengthy period of above-target inflation as long as wage growth remains subdued. Unfortunately, there are early signs that the surge in consumer prices will have second-round effects. Union officials’ inflation expectations have surged and if our inflation forecasts are correct, they are unlikely to fall back much. A push by union officials to offset rising living costs coupled with severe labour shortages provide fertile ground for wage hikes in upcoming enterprise bargaining agreements. Surging consumer prices also point to a stronger minimum wage hike next year. That matters because collective agreements and the minimum wage together determine the wages of around 60% of Australian workers. All told, we expect wage growth to reach 3% by the end of next year, stronger than the RBA’s forecast of 2.5%.

30 September 2021

RBNZ Watch

RBNZ finally set to hike rates

New Zealand has slowed the spread of the Delta variant and eased its lockdown, which stopped the RBNZ from hiking in August. And the RBNZ still seems keen to hike rates given the red-hot economy. We expect the RBNZ to launch a tightening cycle at its upcoming meeting on Wednesday 6th October with a 25bp rate hike. Our forecast is that rates will reach 1.50% by the middle of next year.

29 September 2021

Australia & New Zealand Economics Weekly

RBNZ set to tighten in October, RBA in early-2023

The strong rise in New Zealand’s GDP in Q2 nearly returned output to its pre-virus path despite the headwinds from low net migration and the slump in foreign tourism. So while GDP plunged in Q3, we still think the RBNZ will be comfortable raising rates in October. Meanwhile, the lockdowns in Australia will probably cause the unemployment rate to rise in the months ahead. But we doubt the rate will surge as high as the RBA expects. Our bullish view on the labour market underpins our non-consensus forecast that the RBA will lift rates in early 2023.

17 September 2021
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