📝 Continue to Expect RBA Rate Increases In Both April And May: Westpac

The assessment of those issues that the Board is following with respect to future policy the Statement provides the following insights:

• The monthly CPI suggests that inflation has peaked.

• At the aggregate level wages growth is still consistent with the inflation target and recent data suggest a lower risk of a cycle in which prices and wages chase one another.

• The Board remains alert to the risk of a price-wage spiral given the limited spare capacity in the economy.

• Household consumption growth has slowed. But in contrast, the outlook for business investment remains positive.

• Rents are increasing at the fastest rate for some years.

• Employment fell in January but that reflects changing seasonal patterns.

We cannot overlook that the Board still has a very strong tightening bias and, by April, will still not be forecasting that inflation will return to the 2–3% target zone before mid 2025.

Recall a key reason for dismissing a pause at the December meeting was that “inflation was expected to take several years to return to the target range.”

Since then, markets have also lifted the profile for the federal funds rate by 50 – 75 basis points despite the FOMC’s forecasts expecting to lower inflation to 3.3% in 2023 compared to the RBA’s “target” of 4.75% by end 2023.

We continue to expect rate increases in both April and May.

- Westpac