The RBA’s quarterly Statement on Monetary Policy (SoMP) is just out. It is a big document, full of thoughts and views. But there is one key table and one key set of outcomes that really drive any interpretation of what they are saying. That is, where do they think GDP and inflation are going to be over the next couple of years. The above chart shows the iterations of the RBA’s thinking over the past 5 SoMP’s since May 2010. The line you are looking for to see the current expectation is the pink one. The RBA has said that GDP will be negative for Q1 but as you can see it is anticipated to accelerate strongly back to a 4.25% annual pace and this pace will persist for longer than they thought back in Feb (green dotted line) before falling back below 4% next year.
The chart below is Headline CPI. Their forecasts have been a little all over the place with this one over the past year or so. To be polite we’d say they have “evolved” but the key is that they are expecting Headline CPI to reach the 3% ceiling one year ahead of what was predicted in February to be above their band by the end of 2013.
Finally, below is the Core CPI. This is the scary one for borrowers as it too is outside the 3% top of their range by the end of 2013:
So all of the above, along with the forecast that unemployment is heading to 4.25% suggest, and the RBA has said in the SoMP, that rates will need to rise again. Or a more correct interpretation might be that the RBA is going to hike again, even if households remain constrained, because inflation has it spooked in the medium term.
As an aside, the Australian dollar popped on the Statement:
