Australia’s rising inflation expectations argue for higher rates
By James Glynn
SYDNEY – Australian inflation expectations hit their highest level in more than seven years last week, which is likely to put further upward pressure on wage growth and strengthen the case for inflation. a rise in interest rates before the end of this year.
Inflation expectations rose 0.1 percentage point to 5.1%, the highest since December 2014, according to a survey by ANZ Bank and pollster Roy Morgan.
The data comes on the eve of the release of critical fourth-quarter payroll figures that could spark more bets on an official interest rate hike as early as June in the event of a surprisingly strong outcome.
For now, the Reserve Bank of Australia continues to suggest it will be patient when it comes to delivering its first interest rate hike since 2010, as financial markets bet the RBA will tighten the political reins. five times by the end of the year.
Inflation expectations have risen sharply since the start of the Covid-19 pandemic in early 2020, helped by soaring fuel prices and a sharp rise in the cost of building a house.
Real inflation rose at its fastest pace since 2014 in the fourth quarter, but wages have yet to rise with the same vigor.
“The RBA and the Treasury have argued that one of the causes of the decline in wage growth was falling inflation expectations. So the fact that inflation expectations have risen could be an important part of salary history over the next few years,” David Plank said. , head of the Australian economy at ANZ.
Wage growth has been weak for nearly a decade, something RBA Governor Philip Lowe has long said needs to be corrected.
Recent indications from the central bank suggest that it will need to consult a few more quarters of consumer price data to be convinced that inflation has returned to its target range of 2% to 3% after many years below this. Rod.
But that could change if Wednesday’s wage figures turn out to be higher than expected.
Shane Oliver, chief economist at AMP Capital, said the risk of a sudden rise in wages has increased, noting that various company surveys already indicate an acceleration in wage demands.
Consensus estimates for the Wage Price Index on Wednesday call for a 0.7% rise from the previous quarter, but Mr Oliver expects a 0.8% increase and thinks even that forecast could falter. be cautious.
“An upside wage surprise on Wednesday may not be enough to push a rate hike forward, but if it happens again for the first quarter data to be released in May, it could easily set the stage for a hike. in June,” said Mr Olivier.
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