CommBank senior economist Belinda Allen finally said the lower-than-expected monthly consumer price index (CPI) print for May has tilted the balance of risks, which makes the odds of a hold more likely.

“The risks of a rate hike in July have ebbed and flowed with the local economic data over recent weeks,” she said.

Here’s how CommBank’s projections for the July monetary policy holds compared to other major banks:

  • CommBank: Hold at 4.10%
  • ANZ: Hike 25bps to 4.35%
  • NAB: Hike 25bps to 4.35%
  • Westpac: Hike 25bps to 4.35%

The recent economic data released over the past weeks, Ms Allen said, affords the RBA some time to slow its hiking cycle. She highlighted the May monthly CPI, which decelerated to 5.6% annually.

“Parts of the CPI that focussed on rents and market services did continue to show some signs of inflation accelerating or remaining elevated — the monthly CPI did show sticky underlying inflation measures, remaining above 6%, as well as acceleration in some services items, including hairdressing, insurance and recreation services,” she said.

“Sticky services inflation and the RBA’s concerns around upside risks to inflation keep the chance of a hike in July in place, albeit it is not our base case.”

This was different from the view of economists from ANZ and NAB, who said the latest CPI print would add little to no comfort to the RBA.

Ms Allen also pointed out the labour force data in May, which showed a strong growth in employment and the lower unemployment rate.

“Initially this led us to lift the risk of a July rate hike to 50/50 — while the labour market remains tight, there are signs forward indicators of labour demand are softening,” she said.

“Job vacancies continued to fall in the three months to May and are now down 10% from the peak.”

According to RBA’s expectations, unemployment rate will average 3.6% over the June quarter — this expectation might be met based on the data prints for April and May.

“In short, the unemployment rate is performing as the RBA expects at this stage of the cycle. The upside surprise comes from stronger employment growth,” Ms Allen said.

However, the RBA might watch household spending more closely; since the weak household spending outcome in the first quarter of 2023, retail trade data has been mixed, rising 0.7% in May after a flat result in April.