Australian inflation is expected to slow this year after peaking in the final three months of 2022, AMP Capital Markets said, adding that the central bank should pause tightening after Tuesday’s expected interest rate hike.
(Bloomberg) — Australian inflation is expected to slow this year after peaking in the final three months of 2022, AMP Capital Markets said, adding that the central bank should pause tightening after Tuesday’s expected interest rate hike.
Consumer price rises are expected to slow to about 4% by December after reaching a 32-year high of 7.8% last quarter, Diana Mousina, senior economist at AMP, said in a research note Monday. While the downward trend in prices in Australia is lagging global peers, the Reserve Bank shouldn’t take that as a signal that further tightening is necessary, she said.
“Rate hikes are working — housing prices are falling, lending growth is negative, credit growth is softening and consumer spending is weakening,” Mousina said. “Further rate rises risk slowing the economy too much.”
The RBA is predicted to lift borrowing costs by a quarter-point to 3.35% on Tuesday and has said it will do “what is necessary” to bring inflation back to its 2-3% target. Investors are betting that central banks globally are coming toward the end of their tightening cycle as prices begin to ease, with the Federal Reserve downshifting to a quarter-point hike last week.
Mousina said consumer price rises in Australia lagged global inflation last year because of lower wages growth and because energy prices and flood-related food price inflation picked up later in 2022. After peaking later, the downward trend in prices is now slower than economies such as the US and Canada, she said.
“Higher Australian inflation data compared to our global peers should not be taken as a signal that the RBA has much more work to do to get inflation down,” she said. “Most signals are pointing to lower, not higher inflation in coming months.”
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.