Since annual inflation is expected to reach 3%, does this mean that the Reserve Bank’s cash rate is about to rise?

Economists at the Commonwealth Bank have warned those waiting for a positive inflation surprise to despair, as they expect the Consumer Price Index (CPI) to rise to 3%.

However, a “significant” rise in core inflation has not yet emerged, which is attributed to pressure on consumer subsidies and allowances from government subsidies and rebates throughout the pandemic.

CBA experts expect inflation to rise by 0.8 percentage points in the September quarter, raising annual inflation to 3%.

The reduced average CPI is expected to rise 0.8 percentage points this quarter, bringing the CPI to 1.8%.

This rise is expected to slow some other economies, with inflation exceeding 5% for five consecutive months.

He hit a 13-year high in September.

However, Australian CBA economists expect underlying inflation to rise more modestly by mid-2023.

The closures in Sydney and Melbourne weigh on inflation data

The Australian economy has been “hit hard” this quarter as Sydney and Melbourne have been mostly blocked all the time; this is said to weigh the results of the KPI.

However, CommBank economists expect a “modest” acceleration in underlying inflation every six months, which will set the “scenario” for next year.

CBA economists attribute the call to the following factors:

  • A “decent” 0.8% rise in food prices;
  • A “strong” 2.4% increase in transport, due to a 5.5% increase in petrol prices;
  • Home furniture, equipment and services rose by 1.1%;
  • “Low-season” increases in health and education prices;
  • A “modest” increase of 0.4% in the housing component.

Oil prices have already risen in Sydney, Melbourne and Brisban, and 91 Leads are 170 cents per 170 cents per liter in several areas, and many homes are feeling that way.

The HomeBuilder package is a “huge success”, but it is not reflected in the KPI

The HomeBuilder package led to an increase in residential investment, which has led to increased costs due to higher demand for labor and higher material costs, according to CBA economists.

This lift is not reflected in the CPI due to subsidies, which means that the price of housing construction will be “artificially subtracted” this quarter.

CBA economists have also announced that rents will rise by 0.7% in the September quarter, but the cost of public services will not change this quarter.

Household spending is stable after months of volatility

The CBA’s September Housing Expenditure Plan has a “complete” message of stability after months of high volatility.

Housing Purchase, Retail, Travel, Health and Seasonal Categories and Motor Vehicle Expenditure Plans Established in September; this is in line with spending improvements and “positive” approaches as it prepares to pull out of the NSW blockade.

According to CBA economists, looking back at the data shows the negative effects of the Victorian and NSW blockades, but looking ahead shows signs of improvement.

CBA credit and debit card expenses showed signs of improvement before the NSW blockade ended.

National spending grew by 16% compared to the same week in 2019 to October 15, 2021, particularly in NSW.

What does all this mean at interest rates?

The RBA’s forecast is for inflation to rise to 1.75% in the September quarter, in line with the CBA’s economists ’forecast.

This means that the RBA will “hardly” make any material revisions to the current forecast, which is to leave the cash rate untouched until 2024.

RBA Governor Philip Lowe has insisted that the money rate will not increase until real inflation is “permanently” within the 2% to 3% target.

CBA economists believe that this will not happen until the first half of 2023, and the RBA will begin normalizing the money rate in May 2023.


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