RBA won’t crush the labour market to rein in inflation

With RBA Governor Bullock arguing this week that upside risks to inflation are materialising, a rate hike at the Bank’s September meeting looks like a done deal. And given that headline inflation will climb to around 4.5% in the fourth quarter, the financial markets are pricing in further tightening next year. However, monetary policy is already quite restrictive and we think the Bank will be wary of causing a sharp rise in the unemployment rate. Accordingly, we don’t expect any further tightening after September.