In what was probably the easiest decision in quite some time, the RBA unanimously voted to increase rates yesterday. Taking rates to 4.60%, a 15 year high.
The statement this time around, just made it clearer that they really should have just increased rates in August. The key reasons provided for the hike boil down to higher energy prices flowing through to goods and services, inflation expectations remaining elevated, inflation remaining well outside the target band, and ongoing strength in business investment, were all plain to see in August.
Despite our long running inflation challenges, Governor Bullock continued to stress patience in her comments. Noting the Board wants to see how the hikes so far this year feed through the economy. That is a fair position to take, the lags on flow through from interest rate increases are well documented, and it will take time for the current downturn in housing prices to impact spending.
However, she also advised that the scenario that worries her is people starting to treat inflation in the threes or fours as normal, and she said she's already hearing some of that. If expectations shift, the fix is a much deeper slowdown.
While there is quite a bit of data still to drop between now and the RBA’s next meeting, my base case at this stage is another hike in November will be the correct course. Inflation has been too high for too long and its time the RBA took the hard steps to re-anchor it in the target band.