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Australia rate hike brought nearer by inflation, wages

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© Reuters. FILE PHOTO – Two women stand next to the Reserve Bank of Australia Headquarters in central Sydney on February 6, 2018, Australia. REUTERS/Daniel Munoz/File Photo GLOBAL BUSINESS WEEK AHEAD

Wayne Cole

SYDNEY/Reuters – Australia’s central bank appears closer to increasing interest rates, as inflation accelerates. A tightening labour market nudges wages higher. The minutes from its April policy meeting on Tuesday showed that.

According to the Reserve Bank of Australia Board, core inflation rose to 2 to 3 percent above its target range of 2-3% in the March quarter. Additionally, more businesses were anticipating that consumers would be affected by price increases. While wage growth is still slow, it will likely pick up as unemployment drops to below 4%.

The minutes revealed that “These developments have led to the probable timing of the initial increase in interest rates.” “In the coming months, additional information will be made available about inflation as well as how labour costs have changed.”

Analysts expect that data on consumer prices will be available by April 26, and it will indicate core inflation rose 1.0% in the quarter. This would increase the annual rate to 3.2%.

This would mark the first core inflation above the RBA’s target range of 2-3% since 2010. It makes it difficult to justify keeping rates below 0.1%.

The March quarter wage figures are available on May 18th, while the data on Gross Domestic Product on June 1 will provide more information on labor costs.

Marcel Thieliant is a Senior Economist at Capital Economics. “While we expect the Q1 wage indicator to show subdued growth in wage, however, we believe that that will be outweighed by rising inflation rapidly.”

Also, markets bet heavily on rate increases to 0.2% at the RBA’s June 7 policy meeting and almost seven additional hikes to nearly 2.0% expected by year’s end.

This is due in large part to the expectation that the U.S. Federal Reserve (Federal Reserve) will raise its interest rates by 50 basis points in each of May and Juni, which adds to pressure on central banks around the world to do so.

Canada and New Zealand’s central banks recently raised their rates by half an point each, citing the necessity to reduce inflation expectations.

A rise in the RBA’s rate would shock local borrowers, who haven’t experienced an official increase since 2010. In addition to record mortgage debt, households also don’t see any increases.

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