July CPI Lifts RBA November Hike Risk, Still Not Odds-On
Strong July CPI raises the risk of an RBA November hike, but one data point isn't enough. September timing is awkward; November more plausible but needs confirmation.
The July monthly CPI print has increased the probability of a Reserve Bank of Australia rate hike in November, though one data point is not sufficient to lock in a move, according to a research note.
The RBA has emphasised that monthly CPI data are noisy and the short history makes seasonal patterns unclear. The new financial year is a time when many businesses re-price, with subsequent months often more moderate. This pattern could repeat this year, the note said.
Earlier data broke the other way. Labour market and wages data, as well as the Q2 CPI, were all softer than the RBA had forecast. Consumer spending has been more resilient recently. The RBA will not read “not outright contracting” as a sign of upside inflation risks crystallising, the note argued.
On timing, the September meeting is awkward because the August CPI is released the following day. If the August print surprises on the downside, the Monetary Policy Board could look premature if it hiked the day before. The note clarified that the RBA does not receive CPI data ahead of the market. For this reason, a November hike is more plausible than a September move. Even then, confirmation from intervening data would be required.
Split decisions are a distinct possibility. The post-Review personnel changes have added a more academic and potentially more activist perspective to the MPB. Some members may lean toward pre-emptive hikes as insurance against future price spikes. Others likely differ from the RBA staff on the level and trend growth in supply capacity, particularly labour supply. A September hike would certainly involve dissents. A November hike could also see a split vote.
The bottom line, according to the note, is that investors should allow for some risk of a hike later this year. One monthly CPI print is not enough evidence to price in a hike fully. The note said it will be particularly attentive to the labour market and the August CPI.
For the Australian dollar, rising hike odds tend to support the currency. The uncertainty around timing and the need for further confirmation may limit gains. The AUD could find support if subsequent data reinforce the case for a November move. For broader forex market analysis, traders are watching the RBA path closely.
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