Inflation running too hot for comfort ahead of snapshot
The first economic image of the year may show a slowdown in inflation, but this may not be enough to prevent the Central Bank from increasing interest rates.
Hopes for further interest rate relief have been dashed by a resurgence of inflation in the second half of 2025; Analysts and bond traders predict the central bank’s next move will be bullish rather than bearish.
Economists expect the Australian Bureau of Statistics to announce on Wednesday that the consumer price index fell to 3.6 percent from 3.8 percent in November.
More importantly, NAB senior economist Taylor Nugent forecasts the less volatile adjusted average figure will rise 0.3 percent for the month, or 3.3 percent on an annualized basis.
Wednesday’s update will have limited relevance to the RBA, given that it will be replaced by December quarter inflation data ahead of its February board meeting.
But Mr Nugent said a 0.3 per cent rise in the shortened average would put the quarterly figure on track for a 0.9 per cent increase, which would be “too hot for comfort” for the RBA.
Given that this would be 15 basis points higher than the RBA’s last forecast, NAB predicts the board will be forced to raise rates in February, with another increase likely in May.
November CPI will rise due to the timing of the expiration of some energy rebates.
But the RBA will be less concerned with such temporary factors and will pay more attention to more permanent items such as new housing costs and market services.
Speaking after the board kept interest rates steady at 3.6 percent in December, RBA governor Michele Bullock said the board was still undecided about whether the rise in inflation was due to temporary factors or would be more permanent.
“If inflation continues to be persistent and looks like it’s not going to move back towards the board’s target (2-3 percent), then I think that raises questions about how tight financial conditions are,” he said.
“And the board may have to evaluate whether it is appropriate to keep interest rates where they are or raise them at some point.”
Mr Nugent expects Wednesday’s data to show growth in new homes and rents remains strong, but services and consumer goods inflation will gradually fall over the coming months due to very strong recent results.
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