Inflation remains too high, so the Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points, to 4.35%, on November 7. In its monetary policy statement, the RBA said that inflation, particularly in the services sector, was “proving more persistent than expected a few months ago.” We anticipate a further 25-basis-point rate hike in February 2024, which would take the cash rate to 4.6%, before the RBA begins to cut rates in the second half of 2024.
- Headline inflation is trending downward, but the RBA projects that it won’t fall to 3%—the top of the bank’s 2%–3% target range—until 2025. We’re more optimistic, expecting rates of price increases to trend back to the top of the RBA’s target range by the end of 2024, though headline inflation will likely fluctuate alongside volatile items including fuel prices.
- The unemployment rate fell to 3.6% on a seasonally adjusted basis in September, the Australian Bureau of Statistics reported October 19, down from 3.7% in August. We expect an unemployment rate that touched 50-year lows after the pandemic to rise throughout 2024 as financial conditions continue to tighten in a higher-rate environment.
- Gross domestic product (GDP) grew 0.4% on a seasonally adjusted basis in the second quarter, the Australian Bureau of Statistics reported. For the fiscal year ended June 30, GDP grew by 3.4%, above the 10-year pre-pandemic average of 2.6%. We expect GDP growth of 0.75%–1.25% for all of 2024 and see the probability of a recession over the next 12 months as about 40%.