In just a few hours, borrowers will gain insight into the potential for a third consecutive interest rate increase as the Australian Bureau of Statistics is set to release new inflation data. This update will include figures for the first quarter and individual month of March, which are crucial in determining future monetary policy. While the Reserve Bank (RBA) typically prioritises quarterly data, the monthly statistics are expected to highlight the significant impact of soaring fuel prices resulting from the ongoing conflict in Iran.
Economists predict inflation could reach approximately 4.8%, significantly above the RBA’s target range of 2-3%. Commonwealth Bank’s senior economist, Trent Saunders, anticipates a monthly surge of 1.1% in March, bringing the annual rate to around 4.6%. Fuel prices, in particular, are projected to contribute substantially to this increase, with reported rises of over 30% at the petrol pump potentially adding 0.9 percentage points to the monthly inflation figure.
Despite the mixed economic outlook, the RBA has already increased rates twice this year and is expected to make it three in a row at its upcoming meeting. All major banks are forecasting this third hike, with Westpac even predicting additional increases in June and August. Current market sentiment suggests a 75% likelihood that the cash rate will ascend to 4.35%.
Tomorrow’s inflation report could influence the RBA’s decision, potentially softening the case for a hike, which would impose an average monthly blow of about $91 on mortgage holders. According to Commonwealth Bank international economist Samara Hammoud, the quarterly Consumer Price Index (CPI) will be decisive for the RBA regarding any possible cash rate adjustment.
Financial markets are currently estimating a 78% chance of a rate increase, although there are concerns about the potential for lower-than-expected underlying inflation figures. Hammoud noted that even with these worries, only a significant downward surprise in inflation would likely alter the market’s expectations for a May rate hike.
It’s essential to approach this information as general guidance only and seek personalised financial advice suited to individual circumstances prior to taking any actions based on these updates.