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Surging inflation will keep RBNZ hiking cycle underway The persistent rise in inflation to the highest levels in 30 years will be worrying the RBNZ. That’s why we expect the Bank to hike aggressively in the first half of this year. Consumer prices rose …
26th January 2022
Trimmed mean inflation will probably climb above the upper end of the RBA’s 2-3% target band in Q1, which would add to the case for the RBA to start hiking rates in May. However, the RBA hasn’t changed its policy rate in an election month since it started …
Labour market tightening rapidly, inflation surging Omicron is disrupting activity but will only add to the upward pressure on prices RBA to end QE next week, start hiking in August The rapid tightening of the labour market coupled with the acceleration …
25th January 2022
Inflation above target mid-point sets stage for rate hikes this year The strong rise in underlying inflation at the end of last year means the RBA is all but certain to end its asset purchase scheme at its meeting next week. And with underlying inflation …
Labour market tightest since 2008 The 64,800 rise in Australian employment in December meant that the unemployment rate fell from 4.6% to 4.2%, the lowest rate since 2008. RBA Governor Lowe noted last year that if the economic data exceeded the Bank’s …
21st January 2022
Overview – Australia’s Omicron outbreak will hold back the recovery this quarter, but there are plenty of reasons why Australia will outperform New Zealand over the next couple of years. As the labour market has tightened more rapidly than we had …
20th January 2022
Tight labour market will support RBA to end QE The further decline in the Australian unemployment rate in December supports our forecast that the RBA will end its asset purchases in February. The 64,800 rise in employment in December was slightly above …
Economy running hot before Omicron The economic data released this week corroborates our view that GDP surpassed its pre-lockdown level in Q4. For one thing, retail sales values jumped by 7.3% m/m in November and were 6% above their previous peak a year …
14th January 2022
While the strength in New Zealand’s economy will cause the RBNZ to hike rates further this year, we think the RBNZ will end its hiking cycle earlier than the financial markets anticipate. What’s more, we think a housing downturn in 2022 will weigh on the …
12th January 2022
Consumption to fully recover from lockdowns this quarter November’s data support our view that GDP will surpass its pre-delta level in Q4. But while the strength in retail sales is set to fade in the months ahead as Omicron weighs on consumption, the …
11th January 2022
We think that GDP growth in Australia will surprise to the upside. But with wage growth only approaching the 3% watermark the RBA would like to see by year-end, we expect the Bank to keep rates on hold. By contrast, we expect the RBNZ to hike interest …
Omicron probably won’t trigger lockdown In recent weeks new Covid-19 cases have been exploding. More people have tested positive in the past two weeks than in the rest of the pandemic combined. While a lower share of Omicron patients suffer severe …
7th January 2022
The Omicron variant will probably result in a stagnation in consumption this quarter. However, by worsening supply shortages it will only add to the upward pressure on inflation. The upshot is that it won’t necessarily prevent the RBA from ending QE in …
6th January 2022
House prices to fall in 2023 The easing in house price growth in December will continue in 2022. And we expect further tightening in lending standards and rises in interest rates to cause house prices to fall in 2023. The 1.0% m/m rise in house prices …
4th January 2022
The Omicron has lifted new virus cases to a record high, though hospitalisations remain low. (See Chart 1.) We estimate that there are around 2000 hospital beds available for Covid-19 patients in New South Wales, where cases are rising most rapidly, of …
23rd December 2021
The end is coming for QE In a speech this week, RBA Governor Lowe noted that the RBA’s central forecasts were consistent with the Bank tapering its bond purchase programme in February, and ending it altogether in May. But he also acknowledged two other …
17th December 2021
The government unveiled only modest increases in spending in today’s fiscal update. And while the unemployment rate has now reached levels where the Treasurer has pledged to start repairing the public finances, the government’s priority remains to support …
16th December 2021
Labour market strength points to early end to RBA bond purchases The remarkable recovery in Australia’s labour market following the recent lockdowns suggests that the Reserve Bank of Australia will end its asset purchases altogether in February. The …
Activity already rebounding The fall in New Zealand’s output in Q3 will have partially unwound in Q4 as lockdowns were gradually eased. And the fact the fall in GDP was much smaller than the RBNZ’s forecast supports our view that the Bank will lift …
15th December 2021
Treasurer Josh Frydenberg will be giving himself a pat on the back when he presents the Mid-Year Economic and Fiscal Outlook (MYEFO) on Thursday. After all, the federal underlying cash balance was $8bn smaller in the four months to October than predicted …
10th December 2021
The Reserve Bank of Australia and the Australian government are keen to explore the benefits of a retail central bank digital currency. But with pilot projects yet to start, we doubt that an eAud will be launched before the middle of this decade. The …
9th December 2021
The RBA still sounded dovish when it kept policy unchanged policy. We think that rates will rise earlier than the Bank anticipates but later and by less than what the financial markets price in. As widely anticipated, the Bank kept its policy rate …
7th December 2021
A week ago we argued that the reopening of the border was unlikely to ease labour shortages much. Indeed, the government has now delayed the re-entry of the 235,000 visa holders stuck overseas until mid-December to ward off the Omicron variant. However, …
3rd December 2021
Net trade to turn into a drag as imports bounce back While it’s early days , the October trade figures suggest that net trade will turn into a drag on GDP growth yet again as imports rebound after the end of lockdowns . The 3.3% m/m drop in export values …
2nd December 2021
House prices to fall in 2023 Housing demand remains very strong, but rising interest rates and lending restrictions should result in a further slowdown in house price growth next year. The 1.1% m/m rise in seasonally-adjusted house prices across the eight …
1st December 2021
GDP growth to keep surprising to the upside With private consumption now rebounding strongly as lockdowns have ended, output in states not affected by lockdowns continuing to rise, and capital spending resilient, we expect GDP to surpass its pre-Delta …
Economy rebounding rapidly from lockdowns Inflation and wage growth set to surprise to the upside RBA to end QE in August; first rate hike in early-2023 The rapid rebound in activity from the recent lockdowns coupled with a further pick-up in underlying …
30th November 2021
While the RBNZ has lifted interest rates by 50bp and signalled that as much as 200bp of tightening is still to come, the RBA’s central scenario remains that interest rates won’t be raised until 2024. While we have pencilled in the first RBA rate hike for …
29th November 2021
The reopening of the international border took centre stage this week. With 92% of the eligible population having received their first jab, New Zealand has now fully abandoned its Zero-Covid strategy and intends to reopen the border by April 2022. …
26th November 2021
Consumption to fully recover from lockdowns this quarter The 4.9% m/m jump in retail sales in October brought them very close to their May peak and supports our view that consumption will reverse nearly all of the plunge during the lockdown this quarter . …
Investment to rebound as lockdowns end Private capital expenditure dropped during the recent lockdowns but firms’ forecasts point to a strong rebound over the coming quarters. The 2.2% q/q drop in private capital expenditure in Q3 was broadly in line with …
25th November 2021
While the RBNZ only hiked rates by 25bps at today’s meeting, it is set to continue lifting rates next year. However, we think a slowdown in the economy will end the Bank’s hiking cycle with the OCR at 2.0%. Today’s 25bp hike in the OCR was correctly …
24th November 2021
High household debt will magnify the impact of interest rate hikes on the housing market and we now expect prices across the eight capital cities to fall by 5% from H2 2023. The upshot is that the RBA is unlikely to hike rates as sharply as the financial …
RBA still a long way from raising rates RBA Governor Phillip Lowe pushed back once again this week on financial market expectations of a hike in the cash rate in 2022. Lowe reiterated that the economy would need to perform very differently from the RBA’s …
19th November 2021
New Zealand economy is running red hot RBNZ will hike by 50bps next week OCR will rise to 2.0% by the middle of next year The New Zealand economy is clearly overheating. Measures of underlying inflation are mostly above the ceiling of the RBNZ’s target …
17th November 2021
Wage growth will firm up next year putting pressure on the RBA The 0.6% q/q rise in the wage price index in Q3 will provide the RBA with some confidence that rates need to remain low in the near term. But we think that wage growth will rise over 2022, …
Surveys point to strong inflation persisting The easing of Covid-restrictions and the reopening in New South Wales and Victoria in October prompted a lift in business confidence in the latest NAB business survey. Business confidence rebounded from 9.6 to …
12th November 2021
Unemployment rate to fall again in the months ahead The rise in the unemployment rate suggests that the labour market continued to suffer right up until the end of the recent lockdowns. But given the ending of lockdowns in mid-October we expect the …
11th November 2021
Rising interest rates will result in the RBA making further losses in the years ahead. The Bank’s existing reserves should be enough to absorb those losses in a benign scenario, but the Bank will stop paying a dividend. And in a worst-case scenario, the …
9th November 2021
RBNZ to hike by 50bp later this month The sharp decline in New Zealand’s unemployment rate last quarter came despite the strict lockdown implemented in Q3. What’s more, most measures of labour market slack included in the RBNZ labour market suite showed a …
5th November 2021
If the RBA hiked rates by nearly 200bp as the financial markets were anticipating until recently, households’ debt servicing burden would hit an all-time high and housing would become the least affordable since the global financial crisis. That would slow …
3rd November 2021
Striking labour market improvement points to more aggressive hiking cycle The decline in the unemployment rate to 3.4% should encourage the RBNZ to hike rates more aggressively than we had previously anticipated in the months ahead. The massive 2.0% q/q …
2nd November 2021
The RBA abandoned its yield target and its pledge that rates will remain low until 2024 today, but still sounded dovish. While the financial markets expect the first rate hike in May next year, we expect the Bank to wait until early-2023. The Bank pinned …
House prices will come off the boil next year Strong demand means that house prices will keep rising at a strong pace over the next few months, but we think that lending restrictions will result in a slowdown next year. Across the eight capital cities, …
1st November 2021
Trimmed mean inflation rose to 2.1% in Australia in Q3, the first time it has entered the RBA’s 2-3% target band since 2015. Even more strikingly, trimmed mean inflation in New Zealand rose to 4.4%, way above the top end of the RBNZ’s 1-3% target. One …
29th October 2021
RBA throws in the towel With retail sales rebounding even before lockdowns ended and nearly 90% of the population now fully vaccinated, our previous forecast that consumption will rebound by just 3.5% q/q in Q4 following a 10% q/q plunge in Q3 is no …
Consumption to surpass pre-delta high in Q1 2022 The rise in retail sales in September means that the trough in consumption is now behind us. We expect retail sales to rebound in Q4 as restrictions relax and a growing number of Australians are able to …
Underlying inflation strongest in years, but wage growth has yet to pick-up RBA to shift forward guidance for first rate hike to 2023 in February, ditch yield target We think the first hike will happen in early-2023 The acceleration in underlying …
27th October 2021
Strong underlying inflation will keep pressure on the RBA The decline in headline inflation in Q3 was entirely driven by base effects. More importantly, the strong rise in underlying inflation will keep pressure on the RBA to keep reducing monetary …
Surging inflation puts pressure on RBNZ The 2.2% q/q rise in New Zealand’s consumer prices was the strongest since 2011 and well above the RBNZ’s forecast of a 1.4% increase. In fact, the quarterly increase was enough to meet the RBNZ’s 1-3% annual …
22nd October 2021
