Australian Banks Predict Rate Hike Imminent Amid Strong Inflation Figures

Three major Australian banks have revised their interest rate forecasts following unexpectedly strong inflation figures. The Reserve Bank of Australia (RBA) was initially expected to hold off on raising rates, but economists at ANZ, Commonwealth Bank, and NAB now believe a hike is imminent.

The shift in opinion comes after July's consumer price index showed underlying inflation rose 0.5 per cent, beating expectations. ANZ was the first of Australia's biggest lenders to switch their call from an extended hold to one more rise on Wednesday.

NAB economists Sally Auld and Gareth Spence think a rate hike will occur at the RBA's next meeting in September, while ANZ and CBA predict the Reserve Bank will lift the cash rate in November by Melbourne Cup day. The RBA's preferred quarterly trimmed mean measure is likely to come in above one per cent in September, according to NAB.

The strong inflation figures have raised concerns about the impact on housing costs, which accounted for nearly one-third of annual inflation despite making up only 21 per cent of the CPI basket. AMP economists My Bui and Diana Mousina warn that new dwelling purchases need to slow down significantly for the RBA to be comfortable.

NAB also believes there is a risk of a follow-up hike, especially if resilience in activity data emerges ahead of the November meeting. The RBA board is mindful of the effect of further tightening on unemployment and the rapidly deteriorating housing market.