Inflation seems to be overshooting the RBA’s forecasts and the recent acceleration in pay hikes in enterprise bargaining agreements will add to the Bank’s concerns that inflation expectations may become unhinged. What’s more, the recent rebound in house prices creates upside risks to consumption. In reality though, discretionary spending is falling off a cliff and we still expect the economy to enter a recession in the second half of the year. Accordingly, we’ve taken out the final interest rate hike in November that we’ve been forecasting and now expect the cash rate to peak at 4.60% in September.
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