Australia Inflation: Too High To Ignore

By Karol Sindera

CPI in Australia remains elevated, which could cause the Reserve Bank of Australia to restart its hiking cycle next month.

The Australian Consumer Price Index delivered an upside surprise to the market on Wednesday, with both headline and trimmed-mean inflation arriving above consensus and Reserve Bank of Australia (RBA) forecasts. On a year-over-year basis, inflation continues to ease along with the rest of the world; but the pace of decline has been slower than expected.

In its August forecasts, the RBA was anticipating a rise of 0.9% quarter-over-quarter (QoQ) in the CPI trimmed inflation mean; however, the September QoQ figure came in 0.3% higher than that. The August projections were based on an oil price of $80 and an Australian-U.S. exchange rate of 0.66. However, there have since been a meaningful changes, with oil now closer to $90 and the exchange rate at 0.64. Further, GDP and labor market data have been very robust. Focusing solely on unemployment, the most recent rate of 3.6% is tracking below the RBA’s 4Q forecast of 3.9%. Weak productivity and increasing wages also mean higher labor costs and, potentially, higher inflation. All of this could put more pressure on the RBA to deliver an additional hike and revise its near-term inflation forecasts.

Remarks from the RBA have been on the hawkish side. In a speech earlier this week, RBA Governor Michele Bullock said that its board “will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation.” However, during her testimony to a Senate committee yesterday, Bullock declined to confirm whether the latest data was a “material” surprise. She mentioned that the central bank is still in the process of analyzing the data and updating its inflation forecasts, but she did not provide any guidance on the near-term outlook for monetary policy.

In sum, the Australian economy remains resilient, which has meaningful policy implications. The latest CPI surprise implies that inflation is currently tracking above RBA projections with further upside risk. This means that the central bank will likely have to revise its near-term inflation forecasts, and suggests that it might restart its hiking cycle and deliver one more hike in order to return inflation to its 2 – 3% target by late 2025.

This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor’s individual objectives and circumstances and in consultation with his or her advisors. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. The firm, its employees and advisory accounts may hold positions of any companies discussed. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed.

Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.

This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.

The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.

Certain products and services may not be available in all jurisdictions or to all client types. The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Neuberger Berman Group LLC (and its affiliates, “Neuberger Berman”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other non-Neuberger Berman fiduciary about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances.

This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.

Neuberger Berman strives to provide individuals with disabilities equal access to our services, including through an accessible website. If you have questions, comments, or encounter any difficulty using our site, please call us at 212 476 9000.

© 2009-2023 Neuberger Berman Group LLC. All rights reserved.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.