The RBA's decision to hike rates this week was underpinned by its view that upside risks to inflation outweigh downside risks to employment. We suspect that will remain the case for some time. Given the ongoing surge in prices of refined petroleum products, inflation in Australia could rise to nearly 6% by mid-year. Meanwhile, timely data suggest that the labour market is far from capitulating. Consequently, we are lifting our terminal rate forecast from 4.35% to 4.60%.
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