NAB economist expects elevated Q3 CPI 

In a NAB broker briefing held on 10 August, NAB’s chief economist, Alan Oster, warned brokers of a potential forthcoming spike in the third-quarter Consumer Price Index (CPI), which would likely lead to additional interest rate hikes in the near future.

The Australian Bureau of Statistics (ABS) recently reported a 6 per cent inflation rate for the June quarter, a 0.8 per cent rise from the previous quarter's decline, which was below market expectations.

However, Mr Oster warned that the third quarter Consumer Price Index (CPI) is likely to be around 1 per cent, or higher, for the quarter.

Mr Oster said inflation is currently "too high," and anticipated that additional pressures would emerge in the September quarter.

He pointed out that decreased consumer spending, diminished business lending, and lowered growth forecasts alongside the national wage case, will be contributing factors towards high inflation next quarter.

In terms of output, he said there will be “very little growth in the next 12 months” as the consumer essentially “struggles”.

As such, while the Reserve Bank of Australia (RBA) has maintained the cash rate at 4.1 per cent for the past two months, Mr Oster remained doubtful that the inflationary pressures would remain subdued, confirming his expectation of another interest rate hike by November taking the cash rate to 4.35 per cent.

“What’s going to happen to the Reserve Bank is hard to tell. On the one hand, the insights demonstrate the central bank doesn’t need to do anymore. But they are going to have an uncomfortable September quarter CPI, [the data for which] won’t come out until November.

“More importantly, we see the RBA cutting rates around August - September next year, and we think they'll go back to something around 3 per cent," Mr Oster said.

In addition, while a recession is not probable, many Australians may experience recession-like conditions due to fewer job opportunities and rising unemployment, he said.

“It’s going to be tough,” he warned brokers.

House price growth

Shifting focus to the property market, Mr Oster expressed optimism for continued growth in house prices, citing robust demand driven by migration.

He previously predicted a 4.7 per cent increase in house prices by year-end.

Weighing into the broker briefing, executive research director of CoreLogic, Tim Lawless, acknowledged the unusual nature of property price surges given the high interest rates.

CoreLogic data indicated a national increase of approximately 4 per cent in house prices since their mid-2022 low, following a decline of around 9.1 per cent from their peak.

“It’s a little surprising to see this positive rebound, but it comes back to very low supply,” Mr Lawless said.

He cautioned that the rise in house prices could impact the RBA’s outlook, potentially prolonging higher inflation due to increased household spending.

However, he noted this does not seem to be the case but it’s definitely “something to be watchful for.”

While the pressing issue in the property market is the lack of supply, he noted there was
“almost a record number of dwellings that are being built around the construction”, however, building approvals have dwindled.

Mr Lawless pointed out that dwelling approvals have been consistently below average for apartments since 2018 and have encountered constraints for houses since the conclusion of the HomeBuilder program in March 2021.

As such, this situation has contributed to ongoing supply limitations.

[Related: CPI data points towards cash rate hold: Economists]