Where to next after today’s Reserve Bank cash rate cut? Pendal’s head of cash strategies STEVE CAMPBELL explains
IN a unanimous decision at its meeting today, the Reserve Bank eased monetary policy by 25 basis points to 3.6%.
Similar to July, the market priced this cut as all but certain. This time there was no surprise.
The RBA also provided updated economic forecasts in its quarterly monetary statement. Some things change, some things stay the same.
That’s not surprising given its prior forecasts in May were set against heightened uncertainty from the tariff man.
The following table shows the RBA’s latest forecasts:
The big factors remaining unchanged are headline and trimmed mean inflation, as well as unemployment rate forecasts.
Changes to the growth forecast are particularly noticeable.
Growth is revised lower by 0.1% to 0.4%. These downward revisions aren’t a reflection of our trading partners – a modest revision lower over the next 12 months is followed by a pick-up from mid-2026.
One of the drivers in the lower growth forecast is a lack of productivity growth which affects supply in the economy.
In her press conference, Governor Michele Bullock pointed out that the RBA doesn’t forecast productivity growth.
Its forecasts for employment and inflation have been close to what’s been occurring.
Economic growth, however, has disappointed – which the RBA has reconciled by lowering productivity growth assumptions.
Weaker public demand growth and business investment also contributed to this weaker growth outlook. Offsetting this was a better outlook for household consumption and dwelling investment.
Where do the economy and rates go from here?
We don’t expect a follow-up cut at the RBA’s September meeting without a sharp deterioration in the global environment.
November remains more likely.
Quarterly inflation data remains key, with the next release due in late October. This is more comprehensive than the monthly inflation data series which prompted some concern and was a key catalyst for remaining on hold in July.
Also key is the labour market, with the quarterly Wage Price Index and monthly employment data due in the two days subsequent to this meeting.
There are mixed messages about the strength of the labour market.
The RBA’s business liaison shows that firms continue to report difficulties finding staff while unit labour costs continue to increase. In contrast, the RBA notes that the rate of job-switching has declined notably from its 2022 peak.
Find out about
Pendal’s
cash funds
Should the unemployment rate move higher quickly or should inflation come in under expectations, the RBA can respond.
Policy settings aren’t overly restrictive.
With 75 basis points of easing delivered to date, the RBA would be encouraged by a pick-up in household spending and see little pressing need to ease policy again quickly.
Overall, nothing today makes me change my view that we will get one more rate cut this year at the November meeting.
What happens beyond year’s end will be significantly impacted by global events, but markets will still price for one or two more cuts in 2026 for now.
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
What can investors expect following the Reserve Bank’s cash rate surprise? Pendal’s head of cash strategies STEVE CAMPBELL explains
THE Reserve Bank of Australia (RBA) surprised the market today by leaving the cash rate unchanged at 3.85%.
The market had priced in more than a 90% probability that the RBA would ease policy. Expectations for a cut had been set higher at the RBA’s previous meeting in May, where the case for a 50-basis point cut had been discussed.
Throw into the mix the weak first quarter economic growth data (+0.2% for the quarter and +1.3% for the year) and the set of conditions were seen as being in place for the RBA to ease.
At today’s meeting, however, the vote was 6-3 in favour of no change.
In justifying the decision not to move, the RBA noted that the monthly inflation was, at the margin, slightly stronger than expected and that 50 basis points in cuts have already been delivered.
This is buying the central bank time, with the Board noting it had “judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis.”
The information that the RBA needs will come via second quarter inflation data to be released in late July.
On economic growth, despite the weak first quarter result, the RBA does see some cause for optimism.
Domestic demand picking up over the past six months, along with a rise in real household incomes, were cited. The labour market also remains tight.
Uncertainty around inflation and growth, however, remains elevated due largely to US trade policies that remain unresolved.
The RBA sees monetary policy settings as being well positioned to deal with the fall-out should economic growth deteriorate sharply or should inflation fall more quickly.
Leading into today’s decision, the market had priced the cash rate ending the year just above 3%. That has moved closer to 3.25%.
For August, it is priced that the RBA is more likely than not to cut policy. But as today’s decision shows, the market doesn’t always get it right.
At her previous press conference, RBA Governor Bullock was somewhat dismissive of the monthly inflation data series. Today that data series gave the RBA enough to remain on hold.
The quarterly data series still reigns supreme and all eyes will be on 30 July when it is released. If it comes in line with expectations, then it is likely that the RBA eases policy in August.
Find out about
Pendal’s
cash funds
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Here’s what the latest monetary policy adjustments mean for investors, according to Pendal’s head of cash strategies STEVE CAMPBELL
THE Reserve Bank of Australia eased monetary policy for a second time this year, cutting the cash rate again by 25 basis points to 3.85%.
Monetary policy settings do remain in restrictive territory.
The market had flirted with the prospect of a 50-point cut after the turmoil that ensued from Donald Trump’s Liberation Day tariffs announced in early April.
This was pared back following a 90-day pause in tariffs and a plethora of other headlines which saw a diminished case for a bigger cut.
The RBA remains attuned to the risks to global economic growth and inflation.
Its statement noted that “the Board considered a severe downside scenario” and that “monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia”.
Accompanying today’s decision was the RBA’s latest set of forecasts through its Statement on Monetary Policy, as shown in the table below.
The RBA has revised its trimmed-mean inflation forecast lower by 0.1% across the forecast horizon.
(The trimmed-mean measure removes the most extreme price movements, providing a more reliable indicator of the underlying trend in inflation.)
The most recent annual trimmed-mean rate of 2.9% fell within the target band for the first time since 2021. The inflation outlook is more supportive for further policy easing if required.
Real household income in the nearer term has been revised higher, by 0.2% to 3.3% for the year ending June and by 0.1% to 2.6% for 2025.
The labour market, based on what the RBA is looking at, remains tight and employment continues to grow.
Today’s statement conveyed a sense that domestically the RBA remains comfortable with the inflation outlook and where policy settings are at. The upside risks to inflation have been diminishing further.
As with all central banks currently, uncertainty over US trade policy and the ramifications from that reign supreme.
However, the RBA is well positioned to ease more aggressively should the economy require stimulus.
There are signs the rate cut earlier this year is helping households, though the majority of the cut is being saved – not spent.
Find out about
Pendal’s
cash funds
A fall in petrol prices to their lowest level post-Covid is also assisting. Wages growth is finally exceeding the cost of living.
We maintain the view that two more cuts are forthcoming, likely around the quarterly cycle in August and November.
For investors, bonds continue to offer good defensive value in this environment.
And in the meantime, international events will still keep things lively and any uncertainty will see plenty of opportunity for active managers.
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
In this video profile Pendal’s head of cash strategies Steve Campbell explains how the team’s approach to managing cash puts us in a market sweet spot
AS a “safe-haven” asset, cash can be the best-performing asset class when markets come under pressure.
But liquidity in cash is key, says head of cash strategies Steve Campbell, who likens it to “the Steven Bradbury of asset classes”.
“It’s the best-performing asset when others come under stress – and we’ve seen that over the past ten years through various experiences, like Covid,” he says. “But the main thing with cash portfolios is our investors need to know that when they want their money back, that they’re able to access it.”
In this video, Steve – who has more than 25 years of experience in cash and dealing roles – explains how he structures portfolios for Pendal’s broad client base in a way that aims to balance risk and return.
“I will never compromise a slightly higher return by trading that off against liquidity, where I might not be able to get my money back to the client,” he says.
Portfolio decisions are supported by a broader team dynamic which promotes a cross-pollination of ideas and “a better understanding of the risks before you implement portfolio decisions”.
Pendal’s size is one of its strengths, he adds. “One of the advantages that we have is we’re in the ideal sweet spot in the Australian market … Our size is big enough that we’re important, but also small enough that it means our investors are getting the best result at the end of the day.”
Watch the video to learn more about Steve and Pendal’s active approach to cash investing.
Get to know the rest of the team better in these individual profile videos:
Find out about
Pendal’s
cash funds
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
While policy remains in restrictive territory for the RBA, today’s rate cut is unlikely to be a one-and-done affair. Pendal’s Head of Cash Strategies STEVE CAMPBELL explains
AT its meeting this week, the Reserve Bank of Australia eased monetary policy by 25 basis points – taking the cash rate to 4.1%.
The move came with little surprise — the market had priced in an 80% chance of a cut.
This followed the RBA’s comment in December that it was “gaining some confidence that inflation is moving sustainably towards target”.
The central bank also saw an easing in wage pressure and upside risks to inflation — a view supported by fourth-quarter inflation data released in late January, showing annual trimmed mean inflation of 3.2% for 2024.
In its November monetary policy statement the RBA had forecast annual trimmed mean inflation to hit 3.4% by the end of 2024. The weaker inflation result was enough for the central bank to remove some of the monetary policy restrictiveness.
Policy does, however, remain in restrictive territory.
Strong labour data
While the RBA may have breathed a sigh of relief following the inflation figures, the same cannot be said of recent labour market data.
The RBA had forecast the unemployment rate ending the year at 4.3%; it ended at 4%. Meanwhile, the participation rate of 67.1% is a record high.
For those looking for no change this month, the labour market and lack of productivity were cited as key reasons for the RBA to remain on hold.
At its meeting today, the Board revised down materially where it sees the non-accelerating inflation rate of unemployment (or the NAIRU) from 4.5% to 4.2%.
Where to from here?
In this week’s statement, the RBA said: “The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range.
“In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook.”
As is the case now for all February, May, August and November meetings, the RBA’s decision also coincides with the release of updated economic forecasts though the Statement on Monetary Policy.
The following table shows the RBA’s forecasts released this week:
Some of the key forecast revisions to note:
- Trimmed mean inflation has been revised lower by 0.3% to June 2025 and 0.1% for 2025.
- The unemployment rate has been revised lower by between 0.2% and 0.3%.
- Wage inflation was revised up by 0.2% to 3.4% for 2025.
Where does this leave the RBA?
It is highly unlikely that it is a case of one cut and they’re done – so the focus will now move to when the next policy easing will occur.
The next meeting in April marks the first for the new Board structure, which separates it into a monetary board and a governance board, and comes into effect from the start of next month.
Find out about
Pendal’s
cash funds
Prior to its next decision on 1 April, the key domestic data will include wage price index data (due 19 February) and two labour market reports that will be key in determining whether the RBA goes back-to-back.
Even if it doesn’t cut in April, it is unlikely to be a one and done. Further policy easing could occur towards the middle of the year.
Leading into today’s announcement, the market had priced in at least three cuts for 2025. There had also been plenty of talk leading up to today about a hawkish cut – the RBA delivered that.
The RBA also didn’t give anything away; forecasting trimmed mean inflation at 2.7% until mid-2027 means we really don’t know how it will all unfold.
Any further policy easing in the second half of the year will depend on how inflation evolves. The RBA remain cautious and data dependent.
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Anyone looking at policy easing in the near term will be left disappointed, says head of cash strategies STEVE CAMPBELL
THERE was no change from the Reserve Bank of Australia at its November meeting, with the cash rate left unchanged at 4.35%.
No surprises there – if only picking the winner of the Melbourne Cup was as easy.
Anyone looking at an easing of policy in the near term will be left disappointed.
Headline inflation fell sharply in the third quarter due to the effects of energy rebates and some state subsidies. The trimmed mean – one of the RBA’s preferred measures – stripped out these effects and showed annual inflation at 3.5%, in line with the RBA’s forecast.
We also got an updated set of economic forecasts via its Statement on Monetary policy (SoMP). These forecasts show the RBA not seeing “inflation returning sustainably to the midpoint of the target until 2026”.
Inflation is moving in the right direction but remains too high for the RBA to comfortably entertain the idea of policy easing anytime soon.
As has been the case for a while, the level of uncertainty remains high.
Looking at household consumption, its contribution to economic growth has been poor recently due to falling real incomes.
The RBA does expect this to turn, however, with household disposable incomes forecast to rise by 3.9% by the middle of next year.
The labour market also remains tight. The participation rate is at record-high levels and employment growth over the past quarter has been strong.
The RBA forecasts unemployment at 4.3% by the end of this year, before rising to 4.5% by the end of 2025. That does not sound like easing anytime soon.
What about other central banks that have started easing policy – shouldn’t we be following suit?
The following graph shows policy rates over the past 20 years.
Australia and Norway are the last to the rate cut party. Japan doesn’t want to join the party at all after hiking in July, with the prospect of further tightening possible.
The RBA noted that other central banks have eased because they’ve become more confident that inflation is moving back towards their targets.
Expecting the RBA to follow suit in the near term is likely to lead to disappointment. The next move from the RBA will be a cut, but we don’t need to immediately follow the actions of others.
The period pre-GFC shows the US Federal Reserve and Bank of Canada easing against the RBA hiking – different circumstances, with the mining boom sucking up a lot of labour resource and driving wages higher.
Similarly, the period from mid-2016 had other central banks tightening and the RBA remaining on hold in an environment of tepid domestic inflation. The RBA didn’t tighten as early nor as aggressively as other central banks.
Policy is tight, but as the labour is showing it is not so tight that it is strangling the economy. And with disposable incomes likely picking up, the market timing of a first rate cut in May does not seem unreasonable
Find out about
Pendal’s
cash funds
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Australia is still unlikely to join the rate-cutting club before 2025, argues Pendal’s head of cash strategies, STEVE CAMPBELL
THE Reserve Bank left rates unchanged this week as expected, but the more interesting insights came from its latest economic forecasts.
These were contained in the RBA’s quarterly Statement on Monetary Policy which sets out the central bank’s outlook – on which it bases its interest rate decisions.
The latest outlook revealed large downward revisions to headline inflation expectations due to the effect from electricity rebates.
Annual inflation for 2024 is now forecast at 3%, down from 3.8%.
However the RBA does not expect the rebates to be renewed, which would drive an upward revision of 0.9% to the 2025 headline inflation forecast as they roll off.
That would mean headline inflation of 3.7% for 2025.
This is why the RBA favours a trimmed mean, giving a more accurate representation of the true inflation in the economy.
To that end there was not much change.
Trimmed mean is expected to be 3.5% for 2024, returning to the top end of the band in late 2025. The revisions over the forecast horizons were either flat or +0.1%.
No rate cut anytime soon
The RBA will need to see a higher unemployment rate before taking comfort that inflation is a thing of the past.
Due to a tight labour market, the central bank is not yet convinced that wage inflation pressures won’t re-emerge.
Those looking for a rate cut anytime soon will be disappointed – in the absence of some large shock event.
An unemployment rate of 4.3% by year end doesn’t warrant policy easing.
However Pendal’s forward-looking indicators suggest the risks are skewed to that being higher than lower – and may set the case for monetary policy easing occurring early next year.
Public demand was also notably revised higher, supporting economic growth and offsetting the sluggish outlook near term for dwelling investment and business investment.
Uncertain forecasts
It’s clear there is a high level of uncertainty in the RBA’s latest forecasts.
Plenty of factors were offered as to why the economy could evolve on a different path to that forecast:
- The lagged effect from past tightening
- Slowing growth against excess demand and how firms pricing behaviour responds.
- A tight labour market and wage inflation and how that evolves.
- Unit labour costs and productivity, household consumption, the savings rate, the external environment.
These were just some of the factors.
There have been significant moves lower in yields since the start of July.
The US look as though they will ease monetary policy in September following the weaker non-farm payrolls report and the rise in the unemployment rate.
Find out about
Pendal’s
cash funds
In New Zealand the RBNZ produced a backflip worthy of an Olympian – and now looks like it might be easing multiple times this year.
The Bank of Canada has eased at consecutive meetings. The Bank of England kicked off its cutting cycle earlier this month.
The RBA remains the outlier with most other developed central, the other exception being the Bank of Japan.
How quickly the RBA joins the rate-cutting club will depend on how quickly it can garner certainty that inflationary pressures are a thing of the past.
At this stage that is not a 2024 story.
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Anyone hoping for Australia to join the global rate-cut club is likely to be disappointed in the short term, writes Pendal’s head of cash strategies, STEVE CAMPBELL
AS expected, there was no rate change from the Reserve Bank today.
We believe changes are more likely to happen at RBA meetings where updated forecasts are released in the form of their Statement on Monetary Policy.
Those meetings are held in February, May, August and November.
What did we get out of today’s statement?
There are a lot of known unknowns at the RBA at the moment:
- To what extent are lags from past policy tightening still feeding through to the economy?
- How will consumption growth look after tax cuts, the wealth effect from rising house prices and lower inflation?
- What pricing responses will we see from businesses in light of a tight labour market and slowing demand?
- And what of the external environment? Geopolitical risks remain elevated. The economic outlook for China and the US has improved. Commodity prices have risen.
The central bank rate-cut club has increased its membership in recent months.
The Bank of Canada and the European Central Bank both joined the club this month, easing by 0.25% each.
Existing club members include the Swiss National Bank and Sweden’s Riksbank.
Anyone looking for Australia to join the club soon would be disappointed, however.
The final paragraph from today’s RBA note said: “Inflation is easing but has been doing so more slowly than previously expected and it remains high.
“The Board expects that it will be some time yet before inflation is sustainably in the target range.”
So the RBA is not ruling anything in or out. Rate hikes? We see this as highly unlikely.
What the RBA is looking for
The RBA needs to see inflation moving sustainably towards its target before easing policy.
Instead, right now it sees excess demand in the economy and a tight labour market.
There is now a higher risk of an RBA policy mistake caused by holding policy too tight, for too long.
The RBA is now reactive to past data. Gone are the days of relying on forecasts resulting in policy changes.
That is a scenario they are more comfortable with, however.
Easing policy too soon – without inflation properly contained – is the death knell for any central banker.
Find out about
Pendal’s
cash funds
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
The Reserve Bank seems prepared to look through higher near-term inflation without hitting the panic button. Pendal’s head of cash strategies STEVE CAMPBELL explains the latest numbers
THE Reserve Bank left the cash rate unchanged at 4.35% today – and that’s where it will likely stay this year, based on its accompanying quarterly forecasts.
Bond yields rally following the announcement.
Those looking for a more hawkish tilt following higher-than-expected, first-quarter inflation data were left disappointed.
The RBA’s economic forecasts – contained in its quarterly Statement on Monetary Policy (or SoMP) made for interest reading.
If the SoMP was released prior to the rate announcement, yields may have actually moved higher.
The RBA is now forecasting annual headline inflation to end the year at 3.8% – up from 3.2% in the February statement.
Annual trimmed mean inflation (which filters out extreme price movements) is now forecast to be 3.4% at the end of the year, up from 3.1%.
Upward revisions of 0.6% and 0.3%? It would not have been unreasonable to expect something more hawkish today.
However, the RBA is looking through nearer-term upside inflation. Inflation forecasts for 2025 remain unchanged at 2.8%.
The RBA also revised the quarterly unemployment rate lower by 0.1% to 0.2%. It’s now expected at 4.2% by the end of the year.
Economic growth was forecast to be lower. Part of this is also due to higher rates that have gone into forecasts relative to February.
These are not the RBA’s assumptions on where the cash rate will be.
Rather they use market pricing and economist expectations for the cash rate, which have changed by around 0.5% to 0.6% since the February forecasts.
What’s next
So what do we take out of today?
Should inflation end the year close to the RBA’s forecasts, then rate cuts won’t be happening this year.
Yet the statement reflects patience on the part of the RBA. The central bank seems prepared to look through higher near-term inflation outcomes and is not hitting the panic button.
It will take more to tighten monetary policy. The cash rate is now more likely to end 2024 at 4.35%.
Find out about
Pendal’s
cash funds
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
What does today’s Australian inflation data mean for investors? Pendal’s head of cash strategies STEVE CAMPBELL explains the numbers and what they mean for rate cuts
CALLS for rate cuts in 2024 now appear premature based on first-quarter inflation data.
Headline inflation rose 1% over the first quarter, resulting in annual inflation of 3.6%. Economists had been expecting a quarterly rise of 0.8% and 3.5% over the year.
The RBA’s preferred inflation measures – the trimmed mean and weighted median – also exceeded expectations by 0.2% for the quarter, rising 1% and 1.1%, respectively.
After moving to a neutral statement in its March meeting, it’s likely the RBA will take a more cautious, hawkish tone in its next statement in May.
That meeting will be accompanied by a monetary policy statement with updated economic forecasts.
From its February forecasts, the RBA sees annual headline and trimmed mean inflation for the year ending June 2024 at 3.3% and 3.6%, respectively.
Headline inflation has risen 2.77% since June 2023 and a trimmed mean of 2.95%. For the RBA’s forecasts to be realised, we need 0.48% and 0.6% for the next quarter.
Inflation forecasting is a tough caper, but if these annual forecasts were to be revised, they would more likely be higher than lower after today’s data.
A closer look at the data
Looking at the key underlying components from the Bureau of Statistics, we can see:
- The rental market remains extremely tight, with rents rising 7.8% over the past year. This is the biggest annual increase since 2009. With population growth of around 2.5%, a housing shortfall and supply lags, there is nothing in the near term to suggest the rental market will turn around soon.
- Insurance costs surged 16.4% over the past year, recording their highest rise since 2001. Natural disasters, higher reinsurance and claims costs were cited as by the Bureau as drivers.
- Electricity prices could cause volatility in the nearer term. Prices fell 1.7% in the March quarter, resulting in prices rising 2% over the past year. This is much lower compared with the 6.9% annual rise over 2023.
The Energy Bill Relief Fund rebates which came into effect in July 2023 have had a significant effect on the annual number.
Since June 2023 electricity prices have risen 3.9%. Excluding the rebates, they would have been up 17%. When the rebates drop out of the number (and unless they are replaced with something else) then annual electricity prices will pick up in the Q3 numbers. - Education has its annual increase recorded in the first quarter of the year. The 5.9% increase in the first quarter was the largest rise since 2012.
Did anything actually fall?
Apart from a decrease in electricity prices, other falls included:
- International travel (down 5.9%)
- Furniture (down 5.6%)
- Clothing and footwear (down 1.1%).
Find out about
Pendal’s
cash funds
Where do we see the RBA now?
Prior to today’s data I had thought November was the most likely date for the RBA to ease policy prior. (And as a mortgage holder, I thought this might also be a rare win on Melbourne Cup Day).
The chance of no cuts in 2024 is now closer to 50/50.
The unemployment rate at 3.8% – along with the Stage 3 tax cuts and a fear of cutting before inflation is properly contained – mean the risk for no change in 2024 is now higher now after today’s release.
Along with domestic forces, the RBA is also closely observing the inflationary environment overseas – particularly in the United States.
The chance of no cuts in 2024 is now closer to 50/50.
The unemployment rate at 3.8% – along with the Stage 3 tax cuts and a fear of cutting before inflation is properly contained – mean the risk for no change in 2024 is now higher now after today’s release.
Along with domestic forces, the RBA is also closely observing the inflationary environment overseas – particularly in the United States.
Inflation has remained more stubborn than expected by the US Federal Reserve and economists. The US economy has also been supported by a more accommodative fiscal stance than in Australia.
Neither central bank wants to ease policy until they are comfortable that inflation has been sustainably contained – comfort that may only occur in 2025.
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.