Underlying inflation lifted 0.4 per cent in January to be 2.9 per cent higher through the year and at the top of the Reserve Bank of Australia’s target band, according to the Melbourne Institute monthly inflation gauge.
The gauge, which tracks inflation on a month-by-month basis compared with the quarterly Bureau of Statistics metric, will bolster rate hawks tipping the RBA will be forced to raise interest rates this year.
“The measure has inflation at the top [of the RBA’s] 2 per cent to 3 per cent target band,” Melbourne Institute Associate Professor Sam Tsiaplias said, adding the main drivers were housing construction costs and rents.
The central bank’s board will meet for its first monthly meeting of the year on Tuesday when economists expect members will decide to terminate the $350 billion weekly bond-buying program.
Headline inflation at 3.5 per cent and underlying inflation at 2.6 per cent in the year to December 31 will be a key point of discussion for the board, with the result well ahead of the bank’s forecasts.
But RBA governor Philip Lowe indicated as recently as November that current economic conditions “did not warrant an increase in the cash rate in 2022” and labelled market expectations of multiples hikes an “overreaction”.
A key condition the RBA wants to see moving higher is wages, which the board believes need to be growing at 3 per cent or more annually for inflation to be sustainably within the target band. The most recent Wage Price Index for the September quarter, which is based on August data that is now six months old, showed wages growing at 2.2 per cent annually.
Be the first to comment