There is a cascade of analysts forecasting a near term RBA rate hike. Westpac says No.
Westpac’s call puts it at odds with banks that have already shifted to a September or November hike, framing the July inflation beat as noisy rather than a genuine signal of reacceleration. The bank’s focus on softer labour market and wage outcomes as the key offsetting factor suggests it sees the RBA weighting employment data more heavily than the headline CPI surprise in the lead up to the next meeting. By pointing to stable housing cost inflation and constrained developer pricing power, Westpac is effectively arguing the hottest components of the July print, durable goods and discretionary services, reflect one-off timing quirks rather than broad-based price pressure. A continued hold call from a major bank should temper some of the market repricing seen since Wednesday’s data, though the gap between Westpac and hawkish peers leaves scope for volatility around upcoming labour market releases.
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Westpac isn’t buying the case for a hike, even as the inflation numbers make the argument look stronger.
Summary:
- Westpac says July CPI came in hotter than expected, monthly inflation up 1.0% and the core trimmed mean measure up 0.5%, both above expectations, despite a slight slowdown in the annual pace
- The bank says this has increased the risk of a November rate hike but it still expects the RBA to hold rates for the rest of the year
- Housing cost inflation was more stable, with new dwelling costs and rents broadly in line with expectations, as the housing market downturn limits developers’ pricing power despite higher trade material costs
- An upside surprise came from durable goods, including motor vehicles and household items, and household services such as restaurants and domestic travel, with some of the surprise linked to sale timing and rising chip prices
- Westpac says market services inflation remains above target, but a softer than expected labour market and wage outcomes reduce the likelihood of a November hike
- The bank expects the RBA to remain cautious on inflation risk commentary but to stay on hold through the remainder of 2026
Westpac says the Reserve Bank of Australia will likely leave interest rates on hold for the rest of the year, even after a hotter than expected July inflation print raised the odds of a November rate hike.
In a client note, the bank said monthly inflation rose 1.0% in July, with the core trimmed mean measure up 0.5%, both surpassing expectations and sparking speculation about a possible hike despite a slight slowdown in the annual inflation rate. Westpac said the increased risk of a November move is real, but it continues to expect the central bank to hold steady through year end.
The bank pointed to more stable housing cost inflation as one reason for caution. New dwelling costs and rents came in broadly as expected, with Westpac noting the ongoing housing market downturn is limiting developers’ ability to pass on higher trade material costs to buyers.
Westpac said the main upside surprises in the July data came from durable goods, including motor vehicles and household items, along with household services such as restaurants and domestic travel. It attributed some of that surprise to timing effects around sales periods and rising chip prices, rather than a broader shift in underlying price pressure.
Despite acknowledging that market services inflation remains above the RBA’s target, Westpac said a softer than expected labour market and weaker wage outcomes reduce the likelihood of the central bank moving in November. The bank expects the RBA to maintain a cautious tone in its public commentary on inflation risks, but said this is unlikely to translate into a rate rise before the end of the year.
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Meeting dates ahead for the Reserve Bank of Australia:
This article was written by Eamonn Sheridan at investinglive.com.