RBA "Shadow Board" recommends a +25bp interest rate rise on February 7

The Reserve Bank of Australia "Shadow board", a group run out of the Australian National University.

• made up of 9 voting members and 1 non-voting chair
• an initiative sponsored by the Australian National University's Centre for Applied Macroeconomic Analysis (CAMA)

In brief from the report:

• Monetary Tightening Needs to Continue to Bring Rising Inflation Under Control
• The annual headline inflation rate in Australia climbed to 7.8% in Q4 of 2022, the highest it has been since Q1 of 1990, driven mainly by increased prices for food, automotive fuel, and new dwelling construction.
• The RBA Trimmed Mean CPI increased 6.9% year-on-year, the highest print since the series began in 2003 and well above the RBA’s target band of 2-3%.
• While there are signs that past interest rate increases are slowing the economic activity, the Australian economy, in particular the labour market, remains quite strong. The global economy is also proving to be more resilient than expected.
• The RBA Shadow Board is convinced further monetary tightening is appropriate. In particular, it is 78% confident that the overnight rate should be raised to above the current setting of 3.10%, with a mode recommendation of a 25 bps increase, to 3.35%, whilst attaching a 20% probability that keeping the overnight rate on hold this round is the appropriate policy.

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There was more troubling inflation data from Australia earlier:

• Australia data - monthly headline inflation (from MI) +0.9% m/m, core also +0.9% m/m

While retail trade slowed:

• Australian data - Q4 2022 Retail sales -0.2% q/q (expected -0.6%)

Consensus is for a rate hile at the Reserve Bank of Australia February 7 meeting:

• RBA meet February 7 - preview. Poll finds 30 of 31 analysts expect a 25bp rate hike.