Inflation in Australia rose at the fastest rate in two decades over the last quarter as gasoline, food and building supplies all saw heavy price spikes.
The development has fueled speculation over interest rate hikes, with some analysts predicting that the country could move away from record-low rates as early as next week.
The view that emergency low interest rates of 0.1% should be raised is gaining momentum, and it is possible that the Reserve Bank of Australia may make such a move at its next policy meeting on May 3rd. Should such a decision not be taken so quickly analysts are confident a rate hike will be confirmed in June.
“The increase in non-tradables inflation signals that this is partly due to the momentum on wages, and not just disruptions in the global economy,” economists fro ANZ Bank said in a report.
“We now expect the RBA to hike by 15 basis points next week. Inflation pressures have momentum and have broadened. A cash rate target of 0.1% is inappropriate against this backdrop.”
Markets also reflected the view that a rate hike could take place next week, narrowing the odds on a rise to 0.25%. Futures moved to price in rates of 0.5% by June, either in one hike or two.
The timing of the news couldn’t be worse for Prime Minister Scott Morrison, who is facing a tough battle for re-election with polling showing voter discontent over the cost of living crisis enveloping the country.
Some favor a June hike given the political impacts of such a move to the May 21st election date.
The Australian dollar rose from recent lows to as high as $0.7190, but was still down on the week with investor concerns over the effects of Chinese lockdowns on global supply chains riding high.