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With inflation set to surpass 6% later this year, we expect real household disposable income to fall at the fastest pace since the early 1990s recession. (See here .) In response, Labor leader Albanese this week suggested that the minimum wage should be …
13th May 2022
The 6% rise in the minimum wage will help lift wage growth further this year. But a loosening labour market and smaller minimum wage hikes in the years ahead will facilitate a slow down in wage growth from next year. In Q1 the unemployment rate remained …
11th May 2022
The sharpest fall in real incomes since the 1990/91 recession won’t prevent a strong rebound in consumption this year and next. But with the tailwind from reopening the economy set to fade, consumption and GDP growth will fall below trend in 2024, …
9th May 2022
RBA starts the climb The RBA finally came around to our long-held view that rate hikes would be needed in the first half of this year and hiked rates at the meeting on Tuesday. Admittedly, we had expected the Bank to hike by 15bp, bringing rates back to …
6th May 2022
Trade was a big drag on growth in Q1 The rise in the trade balance in March won’t be enough to prevent trade from being a significant drag on growth in Q1. In the months ahead higher export prices due to the war in Ukraine should lift the trade surplus …
5th May 2022
Weak confidence won’t hold back consumption recovery Retail sales defied the weakness in consumer confidence in March and with the household savings rate still high, we expect consumption to keep expanding at a strong pace . The 1.6% m/m rise in retail …
4th May 2022
Tight labour market sets stage for another 50bp hike by RBNZ The continued tightness in the New Zealand labour market despite the omicron outbreak provides further evidence that the economy is still running hot. That’s why we expect the RBNZ to hike rates …
The RBA started hiking the cash rate today and sounded hawkish for the first since the start of the pandemic. Our forecast that interest rates will reach 2% by year-end is far above the analyst consensus of 1%, but the risks are tilted to the upside . The …
3rd May 2022
Inflation now surging in Australia The 2.1%q/q rise in headline inflation and the 1.4% rise in trimmed mean inflation in Australia in Q1 were much stronger than the RBA was forecasting. Admittedly, the strength in inflation has been largely driven by …
29th April 2022
RBA has not kicked off tightening cycle with 50bp hike since early 1990s But inflation now on track to reach levels last seen in early 1990s Bank to lift cash rate to 0.50% in June, rate to peak at an above-consensus 2.5% The surge in inflation would …
27th April 2022
Inflation to surpass 6% Inflation surged in Q1 and is on track to surpass 6% later this year, exceeding the levels reached around the GST hike in 2000. With trimmed mean inflation already higher than at the start of previous tightening cycles, the Reserve …
RBA bringing forward rate hikes The Reserve Bank of Australia is increasingly coming around to our view that rate hikes will be needed before long. The minutes of the RBA’s April meeting revealed that the Bank is becoming concerned about the second-round …
22nd April 2022
Inflation is surging in both Australia and New Zealand. That is putting pressure on central banks to hike interest rates to slow the economy and curb inflation. But both the RBNZ and the RBA highlighted waning consumer confidence at their April meeting. …
21st April 2022
Inflation is now around its peak The 1.8% q/q rise in consumer prices in Q1 was broadly in line with the RBNZ’s expectations, which reduces the likelihood of another 50 basis point hike in the OCR in May. But we still think high inflation throughout 2022 …
The Aussie and the Kiwi have been amongst the best performing G10 currencies against the US dollar so far this year but, while we expect both to remain resilient in 2022, we eventually expect them to weaken. Both the Aussie and the Kiwi have outperformed …
20th April 2022
The expansion of the government’s “Home Guarantee Scheme” will only result in a modest boost to housing demand. And with affordability set to worsen sharply as the RBA hikes interest rates, it won’t prevent house prices from falling next year. After …
Most analysts are overestimating the near-term negative impact of RBA rate hikes on household finances and are therefore underestimating the degree of tightening required to bring inflation under control. We now expect the RBA to hike rates to 2.5% by …
19th April 2022
Labour market tightening, inflation surging The Reserve Bank of New Zealand’s 50bp rate hike on Wednesday was in line with our forecast and financial market pricing, but defied the analyst consensus of a 25bp hike. We’ve pencilled in another 50bp hike in …
14th April 2022
Unemployment rate to fall further before long The unemployment rate remaining at its joint lowest rate since the 1970s should be enough to keep the RBA on track to begin hiking rates in June. The 17,900 rise in employment was lower than the Bloomberg …
The RBNZ’s decision to accelerate its hiking cycle shows it is willing to move decisively to get a hand on surging inflation. That’s in line with our forecast that it will hike the OCR to 3.0% by the end of this year. The Bank’s decision to hike rates by …
13th April 2022
Strong inflation to trump sluggish wage growth When we predicted two months ago that the RBA would start to hike rates in June, we were among a small minority of analysts holding that view. But with the RBA this week signalling that it will no longer be …
8th April 2022
Evidence is mounting that more rate hikes will be needed Bank to hike rates by 50bp in April and May, 3.0% by end 2022 But we think the Bank will eventually have to reverse course, cutting rates next year Inflation is set to exceed the RBNZ’s forecasts …
7th April 2022
Overview – We expect Australia’s GDP to surpass its pre-virus trend as soon as this quarter and to keep expanding at a robust pace thereafter. While wage growth will accelerate only gradually, we expect inflation to surge to 5% by the middle of this year. …
While today’s policy statement wasn’t outright hawkish, the RBA’s dovishness is waning and we’re confident in our forecast that the Bank will start to lift interest rates in June . As widely anticipated, the Bank kept policy settings unchanged today, but …
5th April 2022
Economy sails through Omicron The 1.8% m/m rise in Australia’s retail sales in February marked the second consecutive increase and underlines that spending remained resilient throughout the Omicron wave. And with sales at cafés and restaurants hitting a …
1st April 2022
House prices to fall in 2023 We continue to expect house prices to begin falling across the eight capital cities in 2023. But the price declines in Sydney and Melbourne in March suggest that the downturn could be starting sooner than we had anticipated. …
Strong Q1 inflation to overcome RBA’s reluctance to tighten policy Bank to allow bond holdings to shrink in line with maturities, first hike in June Markets are pricing in a peak in rates above 3%, we expect a lower 1.75% With Governor Lowe warming to the …
30th March 2022
With the government facing defeat in May’s election, today’s Budget continued the course of loose fiscal policy that began at the start of the pandemic. As the unemployment rate is set to fall to a 50-year low, this only adds to the pressure on the RBA to …
29th March 2022
Consumption rose strongly in Q1 The further rise in retail sales in February still leaves them a touch below their November peak but is consistent with our forecast of a solid rise in consumption in Q1. The 1.8% m/m rise in retail sales values in February …
Inflation picking up even further NAB’s February business survey had already highlighted that purchase costs were rising at a rate consistent with a further pick-up in underlying inflation. And the flash PMIs for March, released this week, provide further …
25th March 2022
New Zealand’s high share of fixed mortgage rates won’t insulate the housing market from RBNZ rate hikes. Indeed, we’re sticking to our view that house prices will fall this year and cause the RBNZ to reverse course next year by cutting interest rates. The …
23rd March 2022
Migration is rebounding much faster after the border reopening than we had anticipated. While that will slow the decline in the unemployment rate, the labour market is already historically tight and inflation is set to surge. The upshot is that the RBA …
21st March 2022
Soaring petrol prices worrying politicians With petrol prices hitting a record high above 3 NZ$ per litre, the New Zealand government this week slashed the excise tax on fuel by 25 cents per litre for 3 months. That’s roughly one-third of the excise that …
18th March 2022
Full employment will drive RBA to hike rates The further decline in the Australian unemployment rate takes the labour market closer to full employment, setting the RBA up to hike rates in June. The 77,400 rise in employment in February was well above the …
17th March 2022
Strong rebound to persist in 2022 The rebound in GDP at the end of last year was larger than the RBNZ was anticipating, which should keep the Bank on its hiking track. And we expect the rebound to have continued in the current quarter despite New …
16th March 2022
We now expect inflation to reach a 21-year high of 5.2% in Q3 as fuel prices surge and firms pass on higher raw material costs to consumers. With the labour market nearing full employment and inflation expectations picking up, we reiterate our long-held …
Governor becoming worried about inflation RBA Governor Philip Lowe reiterated in a speech this week that the Bank can afford to be patient as Australian inflation is not as high as in other countries. However, the Governor highlighted that the surge in …
11th March 2022
Efforts by overseas governments to combat climate change will result in mining falling from 10% of GDP last year to 5% by 2050. Rising exports of “green” metals are unlikely to offset falling coal and iron ore exports and slower growth in liquefied …
9th March 2022
RBA Governor Lowe noted in a recent speech that the Bank no longer has specific criteria for deciding whether inflation is sustainably in the target range. But he highlighted that along with the actual rate of inflation and the outlook, the breadth of …
7th March 2022
GDP will return to pre-virus trend by mid-year The 3.4% q/q rise in Q4 GDP left output just 1.4% below its pre-virus trend, but the recovery remains very lopsided. GDP outside the heaviest-hit sectors has risen by 4.5% since Q4 2019 even as output in …
4th March 2022
Output will return to pre-virus trend by middle of the year Q4’s jump in GDP brought output closer to its pre-virus trend and we think it will get there next quarter already. But with tighter monetary policy looming on the horizon, growth is set to slow …
2nd March 2022
The RBA still sounded dovish when it kept interest rates unchanged today. However, we suspect that another upside surprise in Q1 inflation will convince the Bank that tighter policy is needed even if wage growth remains modest and have pencilled in the …
1st March 2022
House prices probably won’t start falling just yet Leading indicators remain consistent with solid house price growth, but if the recent moderation turns into an outright slump, the RBA will not hike rates as aggressively as we anticipate. The 0.1% m/m …
Consumption kept rising throughout Omicron wave The rebound in retail sales in January suggests that the Omicron wave had a much smaller impact than many had feared and consumption will probably keep rising this quarte r. The 1.8% m/m rise in retail sales …
28th February 2022
Soaring energy prices not a big drag on Australia The conflict in Ukraine is likely to keep commodity prices elevated in the near term. But in a worst-case scenario, the price of Brent crude oil could settle at US$120-140bbl for three to six months. And …
25th February 2022
Investment to rebound in earnest in the years ahead We estimate that private investment rose by a modest 0.7% q/q in Q4, but firms’ expectations of future capital expenditure suggest investment will strengthen before long. The private capital expenditure …
24th February 2022
Inflation set to surge further; first rate hike will come in June. High household debt is a concern, but high savings rate means households have buffers. We expect rates to reach 1.75% by mid-2023. We now expect the RBA to start hiking in June in response …
23rd February 2022
The RBNZ sounded hawkish when it lifted rates today suggesting the OCR will rise further than we had previously anticipated. But a more aggressive hiking cycle will be an even bigger headwind to the economy next year, so we still think the RBNZ will …
Wage growth to approach 3% by year-end The Q4 wage data won’t alter the RBA’s view that inflation isn’t sustainably within its 2-3% target band yet, but we still expect the Bank to start hiking in June as inflation surprises to the upside. The 0.7% q/q …
No budget repair before interest rates rise Treasury Secretary Steven Kennedy used his opening statement to the Senate Economics Committee this week to argue that fiscal policy should remain accommodative until interest rates have been normalised. …
18th February 2022
