Further hike(s) before pause
Almost all surveyed economists are expecting the Reserve Bank of Australia to lift interest rates by 25 basis points this week.
Core inflation looks to have peaked at around the 3rd quarter of 2022.
But the although it wasn't really low interest rates which cause the inflation spike so much as it was extended lockdowns, international border closures, and chronic supply chain disruptions, the surprisingly broad-based nature of inflation through the December quarter will keep the pressure on the RBA to continue hiking.
Gareth Aird of CBA produces a few excellent and illuminating charts:
Source: CBA
Business surveys also suggest that inflation pressures moved beyond their peak in the second half of 2022, while there is still a lot of tightening "in the post" as hundreds of thousands of fixed rate mortgages are due to reset to much higher variable rates over the coming months.
Source: CBA
Wage price growth is expected to peak at a bit under 4 per cent, which over time is thought to be consistent with hitting the inflation target of 2 to 3 per cent.
Nevertheless, the RBA is set to hike 25 basis points in February, with scope for a further 25 basis points hike in March.
