The RBA will be back with another rate decision this afternoon and rates should be going up again to 4.10%.
Even if we ignore the recent supply shock to energy markets, the ground was ripe for another interest rate increase:
✨ Inflation is running far too hot at 3.8% (headline) and 3.4% (Trimmed mean)
✨ Unemployment remains very low at 4.1%, with no signs of weakness
✨ Employee earnings continue to grow faster than inflation (at 5.7%)
✨ Household spending continues to grow strongly at 4.6% YoY
✨ Lending continues to grow strongly at 13.4% YoY
Taken together, all of these indicators point towards an economy out of balance, with demand exceeding supply and putting upward pressure on prices. The RBA needs to take active steps to cool the economy before inflation gets out of hand again.
The recent energy supply shock only makes the need to move now more urgent. While the trajectory of energy prices over the next couple of months is uncertain, there is a clear risk that we see strong growth in energy prices that flows through to prices and pushes already high inflation even higher.
The balance of risk is on the side of move early.