Australia: Inflation is still seen rising 5.0% this year – UOB

Economist at UOB Group Lee Sue Ann comments on the recently released inflation readings in the Australian economy.

Key Takeaways

“Headline CPI growth came in at 1.8% q/q for 2Q22, lower than the estimate of 1.9% q/q, and easing from the 2.1% q/q reading in 1Q22. This marks the second highest reading since the introduction of the Goods and Services Tax (GST). Compared to the same period a year ago, CPI advanced 6.1% y/y, lower than the 6.3% y/y estimate, but higher than the 5.1% y/y print in the previous quarter. The annual rise in the CPI is the largest since the introduction of the GST.”

“Our current full-year inflation forecast of 5.0% remains, underscoring the RBA’s rapid tightening cycle since May that lifted the cash rate to 1.35% from 0.10% as it tries to ensure inflation expectations remain anchored around its 2-3% target. We are anticipating another 50bps hike in the OCR at the upcoming 2 Aug meeting. We then see the RBA slowing to 25bps increments. Our forecast is for the OCR to reach 2.10% by year-end, and for it to reach 2.50% by mid-2023.”

“Last week (20 Jul), the Terms of Reference for the RBA Review was finalised, the three-member review panel appointed, and Mar 2023 set as a deadline for a final report containing recommendations to the government. A primary focus of this review will be ‘the continued appropriateness of the inflation targeting framework’ meaning the numerical choice of the 2-3% inflation target and inflation targeting itself are in scope.”