CPI increase lifts likelihood of November rate hike

The likelihood of a further rise in interest rates has increased as a result of the latest consumer price index (CPI) data, according to key market economists.

HSBC Global Research, Barclays and GSFM have all pointed to the September quarter CPI data as increasing the likelihood of the Reserve Bank opting to lift rates at its next meeting.

GSFM investment strategist, Stephen Miller was even more positive, stating that the 5.2% annual inflation rate “makes a policy rate rise from the RBA on Tuesday November 7 a near certainty”.

HSBC said that the September quarter CPI increase was high enough that another hike was likely, with the headline CPI rising by 1.2% quarter on quarter to 5.4% year on year which represented a surprise on the upside and higher than the Reserve Bank was forecasting.

“Inflation is falling, but is still too high and declining only slowly. Most importantly, it appears to be falling at a pace that is slower than the RBA had expected,” the HSBC analysis said.

It suggested that the key question was whether the near-term upside surprise was enough for the RBA to change its view that inflation will return to its 2-3% target by late 2025.

“Although we cannot be certain, given that long horizon, we see the balance of risks suggesting the RBA will need to lift its cash rate in order to be able to continue to plausibly forecast that inflation returns to target over that horizon,” the analysis said.

GSFM’s Miller based its expectation of a November rate rise on the October RBA board meeting suggesting the bank “has a low tolerance for a slower return of inflation to target than currently expected”.

For its part, Barclays said that inflation had accelerated by more than expected, with underlying price pressures also increasing.

“While the acceleration is unlikely to be a trend, we think the slowdown in inflation will be more moderate than expected. The high headline print, coupled with the Governor’s hawkish rhetoric, suggests a hike is still likely,” it said.