RBA will tighten soon as economy overheats

Australia’s strong rebound from the Delta lockdowns left output quite close to its pre-virus trend. And with consumption holding up during the recent Omicron wave, we think GDP will return to that trend by mid-year. Given that the border closure has knocked 2.5%-pts off labour force growth over the last couple of years, that strong performance underlines that the economy is starting to overheat and we expect inflation to keep soaring. As such, we’re sticking to our non-consensus forecast that the RBA will start to hike interest rates in June.