Inflation, retail sales jump point to Reserve Bank not racking the rates cue yet
Inflation was still climbing in November and reached 7.3 per cent for the year adding pressure to the Reserve Bank to increase interest rates at its February meeting.
The Australian Bureau of Statistics revealed inflation in November hit 7.3 per cent, up from 6.9 per cent the month before, with soaring holiday and accommodation costs one of the leading causes.
Adding to the pressure, job vacancies were still historically high at 444,200, but were down overall. Retail sales in November also broke records with a 1.4 per cent increase, driven by Black Friday sales.
The rise in inflation was not unexpected. The RBA has a forecast for December inflation to reach 8 per cent and a factor in its increase was likely to be electricity bills.
Economists at ANZ said the jobs and inflation data was enough to convince the RBA that it could not pause its hike in interest rates, but their view wasn’t shared by all.
AMP Capital economist Shane Oliver said the RBA had done enough and should pause “and we expect it will, but the risk of another hike to 3.35 per cent is high”.
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There were eight consecutive monthly increases in the RBA’s cash rate last year and the only reason there was a pause in January was because the RBA board does not meet during the traditional holiday period.
“The monthly CPI (inflation) data was broadly in line with our pick for the fourth quarter inflation of 7.8 per cent. If we see an upside surprise in the fourth quarter inflation this may put more pressure on the RBA to hike cash rates above 3.85 per cent,” ANZ senior economist Adelaide Timbrell said.
She said the 4.9 per cent decline in job vacancies did not change the picture of the labour market because there was still an inbalance between labour demand and supply and the proportion of businesses reporting vacancies had expanded from 26.7 per cent to 27.7 per cent.
There was some good news in the inflation data. New dwelling purchases by owner occupier fell. Fashion inflation fell as did communication costs.
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There were, however, big increases in food and non-alcoholic drinks to 9.3 per cent. Holiday travel and accommodation surged to 12.8 per cent in November from only 3 per cent in October.
Bread and cereal costs were up 11.8 per cent. Dairy costs soared 13 per cent.
However, Timbrell said the holiday and accommodation category has erratic swings and on a yearly basis it had not changed much since September.
Food, insurance, furniture and health care costs all rose in November.
