19 July 2024
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Do all economists think interest rates must rise?

Peter Switzer
3 July 2024

This headline won’t work but for the sake of honesty in the media, I’ll run with: “Not all economists think interest rates have to rise!” However, following the release of the latest minutes from the June RBA board meeting, what looks likely is that if the next CPI or inflation reading at the end of July is a bad one, then the central bank will raise rates again.
That fatal date is the last day of July, but before that, the June unemployment number on July 18 will be important and the RBA will want to see a rise in the jobless rate from the last result of 4%. That would be bad news for those wanting work but good news for those worried about rate rises.
We actually get a retail reading for May today and one later in the month on July 30 for the June figures. But the biggie that will make or break the hearts of interest rate worriers is the Consumer Price Index (CPI) on July 31!
So, what kind of number do we need to keep the RBA on the sidelines with interest rates?
Annual CPI inflation was 3.6% in the March quarter of this year. This was lower than the 4.1% annual rise in the previous quarter and marked the fifth consecutive quarter of lower annual inflation since the peak of 7.8% in the December 2022 quarter.
The RBA also looks hard at what economists call the “Trimmed Mean” for annual inflation, which came in at a good 4%. That number was also lower in the March quarter compared to the previous quarter of 4.2% and the peak in December 2022 of 6.8%.
In a perfect world, if the June quarter comes in under 4%, then the RBA shouldn’t raise rates. However, given that the recent ‘less reliable’ monthly CPI reading saw the annual inflation rate go from 3.6% in April to 4% in May, this could be a hard goal to kick.
Okay, that’s the statistical story ahead, but what are economists saying about a rate rise? The AFR surveyed 38 economists so let’s see how many think the cash rate will be higher in December than the current 4.35%.
Wait for it, drumroll please — seven or 18%!
How many see no change? 24 or 63%!
How many see a cut taking the cash rate under 4.35%? Wait for it again — seven!
And Stephen Koukoulas from Market Economics tips the cash rate at 3.85% by December!
Who else expects cuts by December? Try the economists at CBA, Betashares, MLC and Westpac. The chief economist at the latter is Lucy Ellis, who recently was Assistant Governor at the RBA before taking her ‘gig’ at the bank.
Conclusion? The data drop over July will be critical but the only place where a rate rise seems to look more certain is in the media!

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