The latest inflation data from the Australian Bureau of Statistics (ABS) has revealed that the consumer price index (CPI) rose by 0.4 of a percentage point in the June quarter and 2.1 per cent year-on-year.
ABS chief economist Bruce Hockman said: “Annual CPI growth is 2.1 per cent in the June quarter 2018, the second annual rise above 2.0 per cent since September quarter 2014. Most of this annual growth is due to strength in fuel, electricity and tobacco. Annual growth in prices of discretionary goods such as clothing and footwear, and furniture and household equipment, remain subdued.”
However, reflecting on the results, ANZ noted that the data fell “well below the mid-point of the RBA’s target band”, suggesting that a change in the official cash rate from 1.5 per cent is unlikely in the near future.
“From a policy perspective, the focus on making ‘progress towards the mid-point of the band’ suggests that we need to see inflation trending higher before policy is likely to be adjusted,” the bank said.
“With retail prices expected to continue to drag, a lift in inflationary pressures likely requires stronger wage growth to push domestic services inflation higher.
“The Q1 inflation data will support the case that monetary policy is set to be on hold for some time to come — we continue to see the cash rate steady at 1.5 per cent until May 2019.”
Rates still rising despite RBA hold
Despite ANZ’s prediction of a prolonged hold in the cash rate, several lenders — including Macquarie Bank, AMP, ING, Bank of Queensland, Heritage Bank, Auswide Bank and Homeloan — have announced out-of-cycle rate hikes on their home loan offerings, with most attributing their decision to an increase in the bank bill swap rate (BBSW).
AMP Capital’s chief economist, Shane Oliver, recently told Mortgage Business that he expects major banks to follow suit.
“I suspect that it’s highly likely the major banks will follow suit as well.
“The major banks have a bit of flexibility because they get more of their funding from depositors than the smaller banks would, and certainly a lot more than the non-bank lenders do.”
However, Mr Oliver observed that recent rises from non-majors are slight in comparison to an official cash rate hike from the Reserve Bank, and he said that he expects such rate changes to influence the central bank’s decision to keep the cash rate on hold.
“What we’re seeing at the moment is modest in the grand scheme of things compared to what the Reserve Bank might do,” the chief economist added.
“I think it’s also likely that the Reserve Bank will keep interest rates on hold because the banks are increasing their rates for them.”
The Reserve Bank will meet next week (7 August) to decide the next cash rate.