Volkmar Baur at Commerzbank notes that the Reserve Bank of Australia (RBA) is in wait-and-see mode after three rate hikes, assessing how inflation and the labor market evolve. July Consumer Price Index (CPI) eased to 3.5% but missed expectations, with trimmed-mean inflation stuck at 3.6%. He expects a hawkish tone at the September meeting but still doubts another rate hike is likely.

Stubborn CPI and RBA stance

“In the minutes of the most recent monetary policy meeting released yesterday, it became clear that the Reserve Bank of Australia intends to take a wait-and-see approach for now to consider its next move. After three interest rate hikes at the beginning of the year, the bank sees itself in a good position and wants to first assess how inflation and the labor market continue to develop.”

“Although the annual inflation rate fell to 3.5% in July from 3.8% in June, the median consensus forecast, according to Bloomberg, had anticipated a decline to 3.3%. This was likely due primarily to the fact that the energy component did not come in as low as expected.”

“Looking ahead, falling real estate prices are likely to weigh on the housing component of inflation. At the moment, however, there is no sign of this in the current figures.”

“Admittedly, the RBA’s next meeting isn’t until September 29. Another labor market report will be released by then, and even though the CPI figures for August won’t be published until a day later, the RBA will likely get a preview during the meeting.”

“For now, however, it appears the RBA will need to strike a hawkish tone again next month to signal its readiness. We still do not believe, however, that another rate hike is likely.”