RBA Set for Hawkish Rate Hike as Inflation Risks Remain High
The Reserve Bank of Australia (RBA) is expected to deliver a decisive 25 basis point rate hike on September 29, according to ING. The move aims to keep inflation in check as persistent price pressures and resilient labor demand continue to strengthen the case for restrictive policy.
ING points out that inflation risks remain tilted to the upside due to higher global oil prices and their impact on domestic fuel costs. This has added to input costs across transport, mining, and agriculture, as well as food price pressures.
The RBA estimates that a 10% increase in fuel prices could add more than 0.3 percentage points to headline inflation over one to two quarters, with indirect effects from production and transport costs contributing a further 0.2-0.25 percentage points.
Trimmed mean inflation remains stubbornly high at 3.6% year-on-year in August for the third consecutive month, suggesting core inflation accelerated in Q3 rather than eased. Labour demand also remains strong, with full-time employment growth strengthening in both July and August.