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Today, a rate hike seems to be on the horizon, but what are the driving forces behind this anticipated change?
The primary factor at play is inflation. After comfortably residing within the Reserve Bank of Australia’s (RBA) target range of 2 to 3 percent last year, inflation has taken an unexpected upward turn. This shift caught many by surprise, as recent data from the Australian Bureau of Statistics (ABS) showed December’s inflation figures exceeding expectations both in headline and underlying terms.
This surprising rise follows an earlier, unforeseen spike in the September quarter, with headline inflation remaining above 3 percent since August of the previous year. The persistence of these elevated figures places pressure on the RBA’s monetary policy decisions, making a rate hike more probable.
Additionally, the RBA must consider the unemployment rate, which remains at historically low levels. Most recently, it was recorded at just 4.1 percent, indicating a tight labor market that could further contribute to inflationary pressures.
Another consideration for the RBA is the unemployment rate, which continues to sit at historically low levels – it was just 4.1 per cent at last count.
That’s obviously fantastic for Australians – we want the unemployment rate to be nice and low – but it can also give the RBA a bit of confidence that it can increase the cash rate without throttling the economy.
Combine those two factors, and it’s easy to see why most economists think a rate cut is locked in today.