Inflation will keep the RBA under pressure

Business purchase costs in the October NAB survey rose to their strongest level since 2008, consistent with trimmed mean inflation of nearly 1.5% q/q. That probably overstates the strength in underlying inflation in the months ahead as other measure of inflation in the survey were more subdued. While we do expect strong price growth to keep pressure on the RBA to tighten monetary policy, our view that wage growth will only approach 3% by the end of next year underpins our view that the Bank will hike later and less aggressively than financial markets expect.