The RBA will almost certainly hike rates today… but that might be it.
The RBA Board meets for the last time this year today, and they’re almost certainly going to give us another 25 basis points.
But there’s a good chance that could be the end of it.
Because it’s looking pretty likely that inflation has peaked now.
We got our inflation data for the month of October last week, and it was surprisingly soft. Headline came it at 6.9% year-on-year, well short of the 7.4% markets were expecting.
The much-watched trimmed mean measure was also well short of expectations at 5.3%, compared to the 5.7% pencilled in by markets.
And maybe it’s too early to say, but there’s some good evidence stacking up that price pressures are going to ease.
First up is food here in Australia. Food inflation is way down, with the price of fruit and vegetable having almost halved over the past twelve months!
What’s more, those pesky supply-chain bottle necks that we’ve been hearing about… they seem to be easing.
Goldman Sachs constructs a ‘bottle-neck index’. I don’t know how they do it, but it’s well down on recent peaks now, and coming back towards pre-Covid levels fairly quickly.
As I said, I don’t know how they actually build that one, but it’s consistent with other things we’re hearing.
Container shipping rates for example were one of the big inflationary drivers through 2021.
Shipping a container from China to America cost as much as $18,500 in September 2021.
Today it’s $2,500.
So as those bottle necks continue to ease, that will take heat out of the Australian CPI numbers.
And that should give the RBA enough reason to think that their job might be done.
Economists agree with me :
BetaShares chief economist David Bassanese: “At face value, this strengthens the case for the RBA to consider a potential pause in its rate hike campaign after next week’s likely eighth rate hike this year.”
ANZ and HSBC echoed the view, saying the central bank might consider the possibility of pausing at its policy meeting next week.
That would be my bet.
The RBA doesn’t meet in January – they’re still nursing hangovers from NYE. So we’ll have to wait to February to know.
But I think there’s a good chance that the inflation numbers between now and then will continue to come in soft, and it will most-likely show that the peak in inflation was in Q4 2022.
That is, by February, the worst of inflation will already be behind us.
The only black swan in all this is electricity prices, and a lot swings on what happens with a proposed price cap (we’ll find out on Wednesday).
But that risk aside, I reckon that the RBA is probably done.
And the downdraft that rate hikes have been exerting on property prices, is over.
JG.