Tim Hext: Data deluge unlikely to shift the RBA

A busy week of inflation and jobs data offered some relief at the headline level, but sticky housing costs and a resilient labour market mean the Reserve Bank is unlikely to shift its cautious stance just yet. Pendal head of government bond strategies TIM HEXT explains

• Inflation eases, but housing remains sticky
• Jobs data supports cautious RBA stance
• Find out about Pendal Government Bond Fund
• Browse Pendal’s fixed interest funds

Unusually, two big data releases – inflation and employment – emerged back-to-back this week. Overall though, oil prices have had a bigger impact on markets than the latest data reflects, but it always pays to look under the hood of such key data releases.

May inflation data

The monthly headline inflation data is always volatile, especially when oil prices are on the move. Throw in free public transport in Victoria and Tasmania (and now unofficially on Sydney buses) and the squeeze is being eased.

Headline inflation came in just under 4% (3.96%) year on year as fuel and domestic travel experienced some rare deflation.

The RBA was looking for 4.8% for the end of June, but that forecast was made when oil was 25% higher. Co-incidentally it was May last year where we last saw a negative print.

Headline Monthly CPI

Source: ABS

More importantly trimmed mean inflation came in at 3.57%. The RBA was forecasting 3.8% for the end of June.

Overall, this should be a mild positive. However, the details are slightly less inspiring. Of note is housing inflation, the key area whose acceleration in late 2025 led to rate hikes this year.

New dwelling inflation was up 0.9% in May and another sign tradies are passing on cost repairs were also strong at 0.7%. Rents were 0.4% higher, tracking above 4% annually.

Falling house prices and rising costs will not help encourage much needed development.

May employment data

Another mixed data result was today’s employment numbers.

Unemployment fell to 4.4% from 4.5% and the headline number was +40,300 jobs.

However, downward revisions to previous numbers and the fact most jobs were part time meant markets ignored the numbers. Safe to say, nothing new to see here but for now employment is hanging in.

Market impact

The all-important quarterly trimmed mean inflation number will be released on July 29^th.

Forecasts suggest an outcome of 0.9%, leaving trimmed mean at 3.5% annually.

The Reserve Bank would view this as too high but no longer accelerating, likely meaning an on-hold decision in early August but with a small tightening bias.

Markets have a 20% chance of a hike in August and half a hike (12 basis points) by year end.

We remain positive duration but have reduced exposure to reflect the fact three-year futures are finally back at the cash rate (4.35%) again.

If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through our accounts team

About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

Find out more about Pendal’s fixed interest strategies here

About Pendal

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

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