Grim warning of rate hikes before Christmas

Traders have bolstered their bets that the Reserve Bank will resume its run of interest rate increases, ascribing a more than 70 per cent chance of additional tightening by November.

Speculation of another interest rate increase went into overdrive on Wednesday after hotter-than-expected inflation data, which came in at 4 per cent in the 12 months to May, spurred investors to embolden bets of another hike as soon as the RBA’s next meeting, scheduled for August 6.

On Thursday, money markets continued to bet on additional rate pain, ascribing a 36 per cent chance of a rate hike in August, rising to two in three odds by September.

By November, the RBA’s penultimate meeting of 2024, investors had priced in a 72 per cent chance of a 25 basis point increase.

Economists also grew increasingly sceptical that the RBA could avoid dishing out additional interest rate pain to household borrowers, with analysts jettisoning their forecasts to instead predict another hike or a delay to any rate reductions.

“Following the May monthly CPI print, we believe that the upside risks have indeed materialised and it is no longer possible for the bank to ignore a likely significant forecast miss for trimmed mean inflation,” Citi chief economist Josh Williamson said.

Pencilling a rate hike for the RBA’s next interest rate decision, scheduled for August 6, Mr Wiliamson joined analysts at Judo Bank, Deutsche Bank and UBS who are also expecting a resumption of the central bank’s tightening cycle.

Judo Bank chief economic adviser Warren Hogan on Thursday described the latest inflation numbers as “pretty bad” and expected the central bank to embark on at least two additional rate hikes.

“It’s really unfortunate, it’s not good news at all and I think there’s a chance that they’ll go in August and September,” Mr Hogan said.

“This government stimulus in the form of tax cuts and cost of living provisions would maybe force them to go again in November.”

Separate job vacancies data released on Thursday pointed to a further weakening in the jobs market after the number of advertised positions slipped 2.7 per cent to 352,600 roles in May – its lowest level since August 2021.

That figure was 17.7 per cent lower than 12 months earlier, suggesting the RBA’s aggressive run of 13 rate hikes since May 2022 are working to crimp demand and slow the economy as intended.

However, even as the labour market shows signs of fraying, vacancies still remain well above their long-run average, with 1.7 unemployed people vying for every vacant job available.