Market Watch: Examining Inflation and Retail Data Ahead of RBA Decision

Inflation and retail data are in the spotlight as the Reserve Bank of Australia (RBA) considers whether to raise interest rates at its upcoming meeting. The monthly Consumer Price Index (CPI) is predicted to slow from 7.4% in February to 7.2% in March, while economists are divided on their forecasts for retail sales. Commonwealth Bank of Australia (CBA) believes retail trade contracted 0.3% in February based on card data, while ANZ and Westpac predict modest increases of 0.4% and 0.5%, respectively. NAB anticipates a flat print and notes a trend for sales to shift towards spending on services.

Last month, the RBA governor stated that the bank would monitor employment, inflation, retail trade, and business data for guidance on interest rates. Two of these indicators met or exceeded expectations, including a record-low unemployment rate of 3.5% in February, but global banking crises may have added a layer of uncertainty. Nevertheless, central banks in the US and Europe have increased rates in recent weeks.

The RBA is not obliged to increase rates, with policymakers from its March meeting suggesting they would reconsider the case for a pause if the economy showed signs of slowing. A break would allow time to reassess the economic outlook. As a result, futures markets predict that interest rates will remain on hold at the next meeting.

Related Facts:

– Inflation in Australia typically increases during January and February due to seasonal price changes.
– Retail sales rose 1.9% in January, exceeding expectations of a 0.3% rise.
– Major banks predict that interest rates will increase in the second half of 2022.
– Since March 2020, the RBA has cut interest rates to record lows and has commenced a bond-buying program to support the economy.

Key Takeaway:

The RBA’s decision to increase interest rates will depend on the strength of monthly inflation and retail trade data. Economists are divided on the outlook for these indicators, with data on retail sales suggesting a shift towards spending on services. Central banks in the US and Europe have recently increased interest rates in the face of global banking crises, but the RBA may pause if the economy shows signs of slowing.

The decision on whether to increase interest rates is critical for the RBA, with inflation and retail trade indicators suggesting a lack of consensus. While global banking crises add uncertainty, the RBA may choose to pause if, alone or in combination, economic indicators point towards a slowdown.