The RBA will be waiting with bated breath for the inflation number out this morning. So too will the nation’s economists, Treasury officials, investors and the Albanese team in Canberra, with Treasurer Jim Chalmers the second most to lose out if the CPI reading is above 1% for the month and over 4% for the year.

When Chalmers announced a Budget of tax cuts in May, he argued that inflation was expected to fall such that an interest rate cut was expected by year’s end. However, if the RBA raises next week, then a cut will more than likely be delayed until next year!

The one with the most to lose is the PM, Anthony Albanese. If the CPI puts pressure on Governor Michele Bullock to raise rates next Tuesday, then the Government’s goose could be cooked!
Newspoll says Labor is still ahead 51-49 but TheConversation.com says “a national Freshwater poll for The Financial Review, conducted July 19–21 from a sample of 1,003, gave the Coalition a 51–49 lead by respondent allocated preferences, a one-point gain for the Coalition since June. Primary votes were 40% Coalition (steady), 31% Labor (down one), 13% Greens (steady) and 16% for all others.”

And this graph shows what has happened to Mr Albanese’s popularity, and it’s not good.

Back to today’s CPI release at 11.30am, this is what AMP’s chief economist Shane Oliver thinks will be an important test for the data drop this morning: “Our view is that the RBA probably won’t hike again unless underlying inflation as measured by the trimmed mean comes in at 1.1% quarter-on-quarter or 4.1% year-on-year or higher.”

The trimmed mean CPI is what the RBA looks at closely. So, if we get a 1% reading, interest rate worriers and the PM will be able to breathe a sigh of relief.
However, if the number is higher than 1%, the RBA will be under pressure to raise rates. But is there other economic data that might make our central bank worry about a slowing economy that could stop a rate rise next week?

The following readings could work against a rate rise:
1. Australian Gross Domestic Product (GDP) rose 0.1% in the March quarter 2024 and 1.1% since March 2023, and this is a low number, and you have to ask has the economy slowed more since March? (I say ‘yes’!)

2. Retail spending actually rose by 0.6% in May, driven by huge discount sales as retailers feel the pinch, but spending only increased by 1.7% for the year, which says the economy is slowing. This chart shows the slowdown in spending. Look at that drop in the line since August 2022. You can blame rate rises for that.

3. Yesterday, this is what Westpac’s Matt Hassan had to say about our building approvals: “Total dwelling approvals fell 6.5% in June, retracing most of the rise over the previous two months to be back around 12 year lows. The result came in below consensus expectations of a milder 2% fall, although that mainly reflected a sharp drop in the volatile ‘units’ component.” Also, note that the weakness for building is centred on NSW and Victoria, which are Australia’s biggest state economies.

4. The Westpac-Melbourne Institute Consumer Sentiment index decreased to 82.7 in July 2024, which is the lowest in six months, from 83.6 in June of 2024. Consumer Confidence in Australia averaged 100.42 points from 1974 until 2024, so this isn’t a positive reading.

5. Unemployment has increased from 3.5% since late 2022 to now be at 4%, which also shows the economy is slowing, though if it was a bigger rise, the RBA would be less likely to think about a rate hike.

That’s the lie of the land for the economy and the objective comment is that the economy hasn’t collapsed enough to kill inflation effectively. But economies can be deceptive, and data sometimes is slow showing what is happening now because it looks at the past.

Let’s hope the RBA has a better handle on what the economy is doing but a good CPI number today would make it easier for the Big Bank to say no to a rate rise next week.

Clearly, a pretty important Aussie in Canberra will be hanging on for the data drop at 11.30am this morning and he’ll be ‘at one’ with all the interest rate worriers out there. One thing the RBA has to remember is that most Australian borrowers are now over the so-called mortgage cliff and are paying high, variable interest rates, which is bound to hurt spending and the economy over the next six months.