RBA Takes Wait-and-See Approach as Inflation Remains Stubborn

The Reserve Bank of Australia (RBA) is in wait-and-see mode after three interest rate hikes, waiting to see how inflation and the labor market evolve. Volkmar Baur at Commerzbank notes that despite the July Consumer Price Index (CPI) easing to 3.5%, it still missed expectations, with trimmed-mean inflation stuck at 3.6%. The RBA intends to take a wait-and-see approach for now to consider its next move.

The bank sees itself in a good position after three rate hikes at the beginning of the year and wants to assess how inflation and the labor market continue to develop. Although the annual inflation rate fell to 3.5% in July from 3.8% in June, it was not as expected, with median consensus forecast anticipating a decline to 3.3%. The energy component did not come in as low as expected.

Looking ahead, falling real estate prices are likely to weigh on the housing component of inflation, but at the moment, there is no sign of this in the current figures. The RBA will need to strike a hawkish tone again next month to signal its readiness. However, another rate hike is unlikely.