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Upside inflation surprise bodes poorly for rate cuts With price pressures proving inordinately resilient, there is little scope for the Reserve Bank of Australia to start loosening policy in the near future. The 1.0% q/q rise in consumer prices in Q1 was …
24th April 2024
RBNZ to watch and wait for longer On Wednesday we learnt that inflation in New Zealand moderated from 4.7% in Q4 to 4.0% in Q1. At first glance, that outturn was only a touch stronger than the 3.8% the RBNZ had predicted. However, the details of the CPI …
19th April 2024
This page has been updated with additional analysis since first publication. Still-tight labour market gives RBA reason to be cautious The modest rise in unemployment last month doesn’t change the bigger picture that Australia’s labour market is firing on …
18th April 2024
This page has been updated with additional analysis since first publication. Upside inflation surprise raises “higher for longer” risks Although the Q1 CPI print was a touch stronger than we had predicted, we still expect inflation to return to the RBNZ’s …
16th April 2024
Weak capital spending is a key reason for Australia’s poor productivity performance. While investment growth has been strong recently, we think it will take until the second half of this decade before the level of capital spending is high enough to return …
15th April 2024
Markets fret inflation risks The RBNZ’s meeting this Wednesday went by without much ado, with the Bank leaving rates unchanged as everyone had expected. If anything, the Committee sounded a touch dovish, as it no longer mentioned its limited tolerance for …
12th April 2024
The minutes of their most recent meetings revealed that the RBA and the RBNZ have both abandoned their tightening bias. However, the two central banks are likely to walk different paths when it comes to policy easing. We expect the RBNZ to cut rates in …
11th April 2024
The Reserve Bank of New Zealand didn’t drop any hints as to when it might pivot to looser policy at its meeting today. However, as inflation risks recede, we still expect the Bank to start cutting rates by August. The RBNZ’s decision to leave rates on …
10th April 2024
RBNZ remains on the sidelines The RBNZ didn’t drop any hints as to when it might pivot to looser policy at its meeting today, but we still think that it will start cutting rates by August. The RBNZ’s decision to leave rates on hold at 5.50% was correctly …
No rush to cut rates The minutes of the RBA’s March meeting, published earlier this week, revealed that the Bank has now abandoned its tightening bias. Indeed, for the first time since May 2022, the Board didn’t discuss the option of raising rates higher. …
5th April 2024
We believe that the “narrow path” of returning inflation to target while keeping unemployment below pre-pandemic levels is wishful thinking. The Reserve Bank of Australia won’t bring domestic cost pressures under control unless the unemployment rate rises …
4th April 2024
We expect the RBNZ to hold rates steady at its meeting next Wednesday. But with the economy in a deep slump and inflation clearly on the way down, the Committee is likely to tone down its tightening bias. As inflation risks continue to recede, we expect …
3rd April 2024
Slowdown in house price growth has further to run Australian house prices continued to pare their gains last month. And a further loss of momentum appears likely in the near term, especially given that the RBA is unlikely to come to the housing market’s …
2nd April 2024
RBA abandons tightening bias but rate cuts still a long way off While the RBA no longer considered raising interest rates at its March meeting, we think it will take until November for the Bank to start easing monetary policy. The Bank noted that …
Inflation risks linger on At first glance, it would appear that much of the data released this week went the way the RBA was hoping. First, we found out that CPI inflation is on track to undershoot the Bank’s expectations this quarter. Second, retail …
28th March 2024
This page has been updated with additional analysis since first publication. Private consumption set to trudge along The modest uptick in retail sales in February was as we had anticipated. The data confirm our view that consumer spending is likely to …
Overview – Australia’s GDP growth will remain soft throughout the first half of the year so the recent stalling in inflation should be followed by a renewed moderation. However, as the labour market remains very tight, we’re pushing back our forecast for …
27th March 2024
This page has been updated with additional analysis since first publication. Inflationary pressures are letting up, but risks linger Headline Inflation in February once again came in below the expectations of both the analyst consensus and the RBA. But …
Rate cut in August remains plausible At its meeting earlier this week, the RBA dialled down its hawkish bias, with Governor Bullock noting that “the risks to the outlook are finely balanced”. However, her statement may well have been a little premature. …
22nd March 2024
This page has been updated with additional analysis since first publication. Labour market still set to loosen in the coming months The sharp drop in unemployment in February was likely a blip, rather than a trend. With job vacancies continuing to fall …
21st March 2024
This page has been updated with additional analysis since first publication. Economic downturn will pave the way for aggressive rate cuts With the New Zealand economy in a double-dip recession, we’re sticking to our guns that the RBNZ will cut rates more …
20th March 2024
The RBA sounded a touch less hawkish at today’s meeting and we think the Bank will start to lower interest rates by August. The Bank’s decision to keep the cash rate unchanged at 4.35% was correctly anticipated by all analysts polled by Reuters, ourselves …
19th March 2024
RBA will ease policy in the second half of the year The RBA stuck to its hawkish guns at today’s meeting but we think it will pivot towards policy easing by August this year. The Bank’s decision to keep the cash rate unchanged at 4.35% was correctly …
Property downturn set to weigh on iron ore prices As our China team explains here , the downturn in China’s construction sector has barely started but once it does happen, it could knock off one percentage point from GDP growth. Australia got a glimpse of …
15th March 2024
Inflationary pressures have eased further, while labour market slack has risen Economy not falling off a cliff, but interest rates are biting households As the flow of data remain soft, Bank will pivot to policy easing in August We expect the Reserve Bank …
12th March 2024
Household spending could be at a turning point The big news out of Australia this week was that the economy just barely managed to limp along last quarter. To be sure, the 1.5% annual rise in real GDP in Q4 was broadly in line with what the RBA had …
8th March 2024
The surge in the terms of trade explains some of the resilience of Australia’s economy as it has probably encouraged the government to spend more money than it would have done without soaring mining tax revenues. The key point though is that Australia’s …
7th March 2024
This page has been updated with additional analysis since first publication. Subdued activity will pave the way for rate cuts Although GDP growth last quarter was in line with what the RBA had expected, the Bank will take comfort from the fact that …
5th March 2024
More good news for the RBA The Reserve Bank of Australia should take comfort from the fact that most of the data released this week point to a better balance between demand and supply in the economy. On Wednesday we learnt that CPI inflation came in at …
1st March 2024
Housing market will cool further still Australian house price gains eased only slightly in February. However, with home sales now softening noticeably, we suspect that the momentum behind the housing rebound will soon fade. Allowing for seasonal swings, …
This page has been updated with additional analysis since first publication. RBA will take comfort from spending restraint Notwithstanding the rebound in January, we suspect retail sales will make only modest gains across Q1 as a whole. The softness in …
29th February 2024
The Reserve Bank of New Zealand handed down another hawkish hold at its meeting today. However, with inflation on track to return to its 1-3% target by mid-year, we still expect the Bank to start cutting rates by August. The RBNZ’s decision to leave its …
28th February 2024
RBNZ holds rates steady while retaining hawkish bias As had been widely expected, the Reserve Bank of New Zealand left its official cash rate unchanged at 5.50% today. 28 out of 29 analysts polled by Reuters, including ourselves, correctly predicted the …
Inflation will continue to undershoot RBA's expectations The weaker-than-expected inflation print for January all but ensures that the RBA won’t hike rates any further, even if it does retain its hawkish bias at its next meeting in March. And with price …
RBA won't hike rates again Flash PMI data released yesterday showed that Australia’s composite output index jumped to a 10-month high of 51.8 in February. The index is now consistent with annual real GDP growth of about 2.0% in Q1 (see Chart 1), which …
23rd February 2024
Central banks in both Australia and New Zealand are likely to remain in “wait and watch” mode in the near term, given lingering risks to the inflation outlook. However, we think concerns about inflation persistence are overdone. Goods inflation is already …
22nd February 2024
This page has been updated with additional analysis since first publication. Wage pressures will gradually ease over 2024 The pickup in wage growth in Q4 was driven by larger pay packets for public-sector employees. By contrast, private-sector wage growth …
21st February 2024
RBA’s talk of tightening is just bluster The minutes of the RBA’s February meeting showed that uncertainty remains the name of the game. However, we think that the incoming data should give the Board greater conviction that it has done enough to subdue …
20th February 2024
Services inflation will slow sharply Australian labour market data published yesterday garnered considerable attention, largely because they showed that the unemployment rate overshot analyst expectations and jumped to a two-year high of 4.1%. However, we …
16th February 2024
Non-labour input costs are now moderating which should soon result in a more rapid slowdown in consumer price inflation than most are anticipating. In a recent Bulletin article, the RBA argued that “large cost increases over recent years are still flowing …
15th February 2024
This page has been updated with additional analysis since first publication Unemployment rate starts the year with a 4-handle The stronger-than-expected rise in unemployment in January may have been influenced by changes in seasonal employment patterns. …
With activity and inflation both softer than it had expected a few months ago, the RBNZ will likely stay put at its meeting at the end of the month. However, with a still-tight labour market fuelling uncertainty about domestically-sourced price pressures, …
14th February 2024
We survey 12 major advanced economy housing markets to understand why house price falls have been small despite high starting points and sharp increases in mortgage rates. We then use this information to ascertain whether the correction in house prices is …
RBA’s hawkish bias will be put to the test While the RBA’s decision to leave rates on hold on Tuesday didn’t surprise anyone, the Bank’s Monetary Policy Statement did raise a few eyebrows. In contrast to a number of its developed-market counterparts, the …
9th February 2024
Households will pinch pennies for a while yet Consumer spending is likely to remain subdued in the near term, helping to ease demand-side pressures on inflation. Experimental data published by the ABS show that household spending rose by 2.4% y/y in …
This page has been updated with additional analysis since first publication. Rise in unemployment has further to run Although the unemployment rate last quarter came in below the RBNZ’s expectations, leading indicators continue to point to a rapid …
6th February 2024
With the Reserve Bank of Australia still striking a hawkish tone at its meeting today, we’re pushing back our forecast for the Bank’s first rate cut from May. But we still think that incoming data will show enough of a drop in inflation alongside …
RBA pours cold water on the prospect of early rate cuts Although we're sticking with our view that the RBA is done tightening policy, rate cuts may not be in play until the second half of this year. The RBA’s decision to leave its cash rate on hold at …
RBA will soon be gearing up for rate cuts… CPI data released this week bolstered our conviction that the Reserve Bank of Australia will loosen policy in Q2, rather than in Q4 as the analyst consensus is predicting. For one thing, both headline and trimmed …
2nd February 2024
Leading indicators still point to weaker house price growth Although house price gains remained firm in January, we still expect them to soften in the months ahead. While rate cuts are on the horizon, they will do little to improve homebuying capacity. In …
1st February 2024