Analyst: Australian inflation to cool in Q2, but not enough to stop rate hikes

Analyst James McIntyre said Australia’s second-quarter CPI report may show inflation cooling below the RBA‘s expectations, but that may not be enough to prevent it from raising interest rates again.

The RBA is expected to raise interest rates by 25 basis points at its August 1 meeting.

CPI is expected to slow to 6% on an annualized basis from 7% in the first quarter, and will come in at 0.8% quarter-on-quarter, as food price inflation slows.

While this is lower than the RBA’s forecast of 1.2%, we think the RBA would like to see a further decline in inflation before confirming the end of rate hikes.

We expect inflation to return to the midpoint of the 2% to 3% target range in the third quarter of next year.