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Reopening boom to last for a while yet Not only did retail sales rise for the seventh consecutive month in July, the strong size of the increase strongly suggests that the Reserve Bank of Australia will hike rates by another 50bp next month. The 1.3% m/m …
29th August 2022
Reopening boost to last for a while yet Not only did retail sales rise for the seventh consecutive month in July, the strong size of the increase strongly suggests that the Reserve Bank of Australia will hike rates by another 50bp next month. The 1.3% m/m …
GDP growth is holding up The August S&P Global flash PMIs are consistent with our view that the euro-zone is entering recession. And with inflation set to hit 14.5% early next year, the UK economy will shrink before long, too. The composite PMI for the …
26th August 2022
If the slump in China’s property sector continues for much longer, Australia’s export revenue would take a hit as iron ore prices tumble. But there are good reasons to think that the impact on aggregate demand would be smaller than many anticipate . Our …
24th August 2022
Australia’s house prices are now falling at a similar rate as they did during the 2017-19 downturn, which was the largest in the country’s modern history. (See Chart 1.) Home sales remain well above pre-pandemic levels, building activity is holding up …
22nd August 2022
Inflation hits 7% in June The Australian Bureau of Statistics published a preliminary estimate of its new monthly CPI indicator this week. There are two key points. First, monthly inflation was nearly 7% in June, much higher than the Q2 figure of 6.1%. …
19th August 2022
Labour market hasn’t turned for the worse just yet We wouldn’t read too much into the first drop in employment since last year’s lockdowns. Indeed, the continued tightening of the labour market should encourage the RBA to press ahead with another 50bp …
18th August 2022
The RBNZ lifted the overnight cash rate by 50bp to 3% today as everyone had anticipated and signaled that it will deliver another 50bp hike in October. We now expect the Bank to hike rates to a peak of 4% instead of our previous forecast of 3.5%, but we …
17th August 2022
Wage growth will reach 3.5% by mid-2023 Wage growth surpassed its pre-virus peak in Q2 and will jump above 3% this quarter due to a surge in the minimum wage and a tightening labour market. The 0.7% q/q rise in hourly wages excluding bonuses was a touch …
An increase in the permanent migration programme will help to alleviate labour shortages. But the rapid tightening of the labour market in recent months has been driven by strong labour demand rather than a shortfall in supply. The upshot is that the RBA …
16th August 2022
ABS will publish monthly inflation figures It’s been a long time coming, but the Australian Bureau of Statistics revealed this week that it will start publishing monthly in addition to the existing quarterly data on consumer prices. We hope the new …
12th August 2022
Tight labour market and faster inflation point to another 50bp hike next week However, higher interest rates are taking their toll on housing market We expect two more 25bp hikes in October and December, but rate cuts next year Rising interest rates are …
10th August 2022
The extent to which neighbouring countries would be affected by an escalation of tensions between China and Taiwan would depend both on which sides they take and on the nature of restrictions imposed by the West and China. ASEAN countries are most reliant …
RBA turns more pessimistic The RBA delivered yet another 50bp rate hike on Tuesday as widely anticipated. However, following the release of weaker-than-expected Q2 inflation data last week, financial markets are now pricing in a peak in the cash rate of …
5th August 2022
Jump in services imports limiting boost from net trade The surge in Australia’s trade surplus to yet another record-high in June suggests that net exports will boost Q2 GDP growth by around 1%-pt though that tailwind will fade before long . The trade …
4th August 2022
Rising unemployment suggests RBNZ will soon stop hiking The first rise in New Zealand's unemployment rate since mid-2020 suggests that the RBNZ's hiking cycle is nearing its end. Indeed, we expect the RBNZ to start cutting interest rates next year . …
3rd August 2022
The Reserve Bank of Australia revised up its inflation forecasts sharply when it lifted the cash rate by 50bp today and we expect it to hike rates more aggressively over coming months than most anticipate. However, we expect the Bank to start cutting …
2nd August 2022
House prices will continue to fall sharply Allowing for seasonal swings, house prices in July fell as much as they did at the height of the 2017-2019 downturn. With soaring mortgage rates weighing on affordability, prices will continue to fall sharply …
1st August 2022
Housing downturn to bite next year Australian Treasurer Jim Chalmers revealed on Thursday that the government now expects GDP growth to slow from 3.75% in the financial year that ended in June to 3% in 2022/23 and to 2% 2023/24. Our view is that the …
29th July 2022
Consumption will remain resilient The sixth consecutive rise in retail sales in June underlines that households are weathering the headwinds from falling house prices, soaring inflation and surging mortgage payments well and we reiterate our long-held …
28th July 2022
Labour market surprising to the upside, but inflation in line with expectations Bank to keep hiking by 50bp until October Rates to peak at 3.6%, but housing downturn will prompt rate cuts next year While the labour market has surprised to the upside, …
27th July 2022
Inflation to peak around 7% While inflation picked up in Q2, it wasn’t as strong as we had expected. That suggests that the RBA may opt for another 50bp rate hike at next week’s meeting rather than the 75bp we had been anticipating. The 1.8% q/q rise in …
Our view that GDP growth will slow below potential next year assumes one of the sharpest falls in dwellings investment in Australia’s modern history. However, this Update explains why dwellings investment could hold up better than we’re anticipating. In …
25th July 2022
Commodity prices falling With the price of Brent crude oil and some other commodity prices having fallen in recent weeks, the inflation outlook has become a little more nuanced. However, domestic inflationary pressures are still strengthening. The drop in …
22nd July 2022
The minutes of the RBA’s July meeting showed that the Bank debated a smaller 25bp rate hike but ended up hiking rates by 50bp. Those minutes also included a discussion of the level of the neutral interest rate, which will come into touching distance …
21st July 2022
We doubt that the upcoming review of Australia’s monetary policy framework will result in a change to the RBA’s 2-3% inflation target. But the Bank could be forced to put more emphasis on house prices, reduce the frequency of Board meetings, and …
20th July 2022
Inflation has probably peaked The stronger-than-expected rise in consumer prices in Q2 adds some upside risks to our forecast that the Reserve Bank of New Zealand will lift rates to 3.5%, but we still think that weaker economic activity will force the …
18th July 2022
Labour market tightening rapidly On balance, the economic data released this week are consistent with our view that the Reserve Bank of Australia will tighten policy more aggressively than most anticipate. Admittedly, the further slide in consumer …
15th July 2022
Unemployment rate may fall to 3% before long The sharp fall in the unemployment rate in June is consistent with our view that the Reserve Bank of Australia will need to tighten monetary policy more aggressively than most anticipate. The 88,400 jump in …
14th July 2022
The Reserve Bank of New Zealand hiked rates by 50bp in July but emerging worries about the health of the economy are consistent with our view that rates will peak around 3.5% rather than the 4% predicted by the Bank and financial markets. And we’re …
13th July 2022
GDP growth looking solid this year The available evidence suggests that Australia’s households are so far shrugging off the headwinds from rising interest rates and falling real incomes. In last week’s Weekly , we discounted the weakness in the ABS’ …
8th July 2022
Overview – With inflation rising even further than we had anticipated, both the RBNZ and the RBA will slam harder on the brakes than most anticipate. We expect policy rates to peak around 3.5% in both countries. With the ongoing housing downturns set to …
7th July 2022
Huge boost from net trade won’t last The surge in the trade surplus in May suggests that net exports provided an even bigger boost to Q2 GDP growth than we had anticipated. But that boost should fade as the border reopening lifts outward tourism . The …
Inflation is still rising and labour market still tightening We expect the Bank to hike rates by a further 50bp in July But as the housing downturn weighs on activity, RBNZ will reverse course next year Rising interest rates have started to weigh on house …
The RBA sounded a little more cautious about the outlook for the economy when it hiked rates by 50bp today, but we suspect that further upside surprises to inflation will encourage it to eventually lift the cash rate to around 3.5%. However, we expect the …
5th July 2022
House prices are in free fall CoreLogic reported that seasonally adjusted house prices in the eight capital cities fell 0.6% m/m in June, following the 0.4% drop in May. That marks the sharpest fall since 2019, and the housing downturn is only just …
1st July 2022
Housing downturn only warming up The monthly decline in house prices in June was the largest since 2019 but is unlikely to be the sharpest decline in the current downturn. We think house prices will eventually fall by 15% from their April peak, which will …
Consumption growth will remain strong this year The strong rise in retail sales in May highlights the strength in the Australian economy and is consistent with our view that the RBA will continue to hike rates aggressively in the months ahead. The 0.9% …
29th June 2022
Strength in consumption and labour market points to 50bp hikes in July and August Bank to slow tightening in H2, rates will peak above 3% Housing downturn to prompt rate cuts next year The Reserve Bank of Australia will probably lift the cash rate by …
28th June 2022
RBA review won’t change inflation target Treasurer Jim Chalmers butted heads with RBA Governor Phillip Lowe this week over who would lead the forthcoming review of monetary policy. Chalmers denied the Governor’s wish that the review be jointly led by the …
24th June 2022
Wage growth set to rise The 5.2% increase in the Australian minimum wage announced by the Fair Work Commission this week was even bigger than the 5.1% y/y rise in the CPI that Prime Minister Anthony Albanese had suggested the minimum wage should match. …
17th June 2022
Strong employment growth will keep RBA on track The strong rise in employment in May will keep pressure on the RBA to continue its aggressive hiking cycle in the months ahead. The 60,600 rise in employment was well above the Bloomberg analyst consensus of …
16th June 2022
Activity to rebound in Q2 The fall in GDP at the start of the year was due to the disruption to activity from the Omicron outbreak. Growth will have rebounded strongly in the current quarter, but we suspect falling house prices and high interest rates …
The 5.2% increase in the minimum wage announced by the Fair Work Commission will directly lift the Wage Price Index by around 0.7%-pt. But the increase will also contribute to upward pressure on wage growth and inflation more generally. On that basis, the …
15th June 2022
Bank set to deliver 50bp hikes in July and August We argued two months ago that “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 …
10th June 2022
Hawkish shifts by the RBA and the RBNZ in recent weeks have prompted us to forecast an even more aggressive hiking cycle by both central banks in the months ahead. Both central banks hiked rates by 50bp at their latest meeting and we have now pencilled in …
9th June 2022
With the RBA set to hike the cash rate to 3% by early-2023, we now expect house prices to fall by 15% from their April peak. While the economy has considerable momentum from reopening in the near-term, plunging house prices will weigh on consumer spending …
8th June 2022
The 50bp hike in the cash rate today is consistent with our view that interest rates will peak at higher levels than most anticipate and we’re expecting additional 50bp hikes in July and August . That 50bp hike was anticipated by just a handful of …
7th June 2022
Mining underinvestment taking its toll The 0.8% q/q rise in Q1 GDP left output 4.4% above its pre-pandemic peak, one of the strongest performances among advanced economies. (See Chart 1.) With stagnating real incomes weighing on consumer confidence and …
3rd June 2022
Border reopening to boost services imports before long While the rise in export values in April was mostly due to rising commodity prices, the further fall in import values suggests that net trade will turn into a boost to GDP growth in Q2 after a huge …
2nd June 2022