RBA Hike Likelihood Rises as Inflation Remains Stubbornly High

The Reserve Bank of Australia (RBA) is likely to raise interest rates again as inflation remains stubbornly high. Latest household spending data shows no sign of slowing economic activity, with a 1.1% increase in July pushing the annual growth rate to 7%. This has added to the case for more rate hikes.

The four major Australian banks have revised their predictions, with ANZ and Commonwealth Bank predicting an interest rate hike in November. NAB economists Sally Auld and Gareth Spence are even more bullish, forecasting a hike at the RBA's next meeting in September.

NAB notes that underlying inflation suggests the RBA's preferred quarterly trimmed mean measure will likely come in above 1% in September, materially higher than the RBA's forecast of 0.83%. This indicates that the upside risks to inflation are crystallising, and the RBA may respond with a rate hike.

RBA officials have been clear that if these risks materialise, they will respond with tighter monetary policy. Household spending data released on Thursday shows broad-based strength in discretionary categories, particularly recreation and culture, hotels, cafes, and restaurants, with clothing and footwear also strong.