Australia rate bets firm after stronger inflation, retail sales

BETS on a New Year interest-rate increase firmed up in Australia after stronger than expected inflation and retail sales data.

The consumer price indicator advanced 7.4 per cent seasonally adjusted from a year earlier, up from 6.9 per cent in October and exceeding economists’ median estimate, Australian Bureau of Statistics data showed on Wednesday (Jan 11). Retail sales surged by 1.4 per cent in November, more than double forecasts.

The reports sent the Australian dollar up 0.3 per cent to 69.07 US cents and three-year government bond yields rose as Reserve Bank of Australia (RBA) policymakers have said future hikes will depend on incoming data on inflation and employment. The rate-setting board holds its first meeting of 2023 on Feb 7.

Traders firmed up bets on a 25-basis-point hike after the data, seeing odds of better than 80 per cent that the RBA raises rates by that amount. They continue to anticipate that the Australian central bank will increase its benchmark to about 3.9 per cent later this year.

The data highlight the ongoing strength of Australia’s economy as households tap savings built up during the pandemic to finance spending and consumer price growth remains elevated.

The central bank is in the midst of an eight-month tightening cycle that has lifted the cash rate to 3.1 per cent from a record-low 0.1 per cent in May as it joins global counterparts in trying to tamp down price gains.

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While consumer price growth quickened, the result is in line with Reserve Bank expectations that inflation peaked late last year. It forecasts an 8 per cent rate in the fourth quarter, with data for the three-month period due out in two weeks’ time.

Today’s monthly CPI report showed core prices, or the trimmed-mean gauge, climbed 5.6 per cent in November compared with a forecast 5.5 per cent.

Policymakers and economists have urged caution in reading too much into the monthly figures as it doesn’t cover the entire CPI basket. That makes the fourth-quarter release on Jan. 25 the key result ahead of next month’s policy meeting. BLOOMBERG