Inflation is anticipated to make another move in the wrong direction in the eyes of the Reserve Bank, with borrowers facing the risk of higher-for-longer interest rates.
The Australian Bureau of Statistics on Wednesday is expected to reveal the consumer price index — now at 3.6 per cent — edged up in May on an annual basis, with Commonwealth Bank expecting a rise to 3.7 per cent year-on-year.
While the RBA last week left the cash rate on hold at a 12-year high of 4.35 per cent, it left open the possibility of a hike given inflation was still some way above its 2 to 3 per cent target range.
Governor Michele Bullock has previously said June quarter inflation data — set to be released at the end of July — would be critical ahead of the board’s next meeting in August but the uptick in May’s data would still likely spook investors.
Some economists are already calling the RBA’s August meeting “live” for a possible interest rate hike.
“A continued tick up in the CPI indicator will not be welcome by the RBA who is increasingly vigilant on the path of inflation from here,” CBA economist Stephen Wu said in a recent note.
“However, the RBA has made clear their focus is on the quarterly CPI release, which remain the benchmark inflation figures in Australia.
“Unfavourable base effects a year ago, roll-off of electricity rebates in Melbourne, and ongoing high inflation in areas like insurance will obscure the expected further progress to be made on market services inflation.”
CBA expects a rise in electricity prices as a result of energy rebates in Victoria rolling off, while clothing and footwear prices are anticipated to record a big fall — reversing the gain recorded in April.
“Growth in the average monthly spend on clothing and footwear on CBA cards was the lowest for May since the pandemic,” Mr Wu said.
“A seasonal fall in holiday travel and accommodation prices is also expected, after the school holiday period.”
RBA deputy governor Andrew Hauser will deliver a speech at the A50 Australian Economic Forum on Thursday, with the focus falling in any fresh hints of hawkishness.
Other financial reports out this week include data on job vacancies and household wealth, both to be released on Thursday.
Westpac’s leading index released on Wednesday will reveal how economic growth is expected to shape up three to nine months into the future.