The question surrounding the Reserve Bank's cash rate increases is no longer 'If', but 'By how much'?
The RBA Board has just had two months off given it does not meet in January to decide the cash rate, and since then some revealing economic data has been released by the ABS.
Retail sales - the monthly figure for December - posted a large drop of 3.9%, while the quarterly result posted a 0.2% loss despite Black Friday and Boxing Day sales hype.
Inflation for the December quarter also came in at 7.8%, the highest (sans-GST introduction) in more than 30 years. Underlying was also 6.9% implying there's not much fat to trim.
The near consensus among experts is that the RBA Board will increase the cash rate target by 25 basis points on Tuesday, bringing it to 3.35% - the highest since June 2012.
Westpac economists, +0.25bps
"We expect it is highly likely that the Board will decide to raise the cash rate by 25 basis points while maintaining the guidance used in December for the next meeting on March 7,” said Bill Evans, Westpac chief economist.
"The disturbing inflation report is likely to be the key driver of the decision to raise the cash rate in February.”
CBA economists, +25bps but risk of +40bps
"Our base case is that they hike the cash rate by 25 basis points next week, but we think the case to raise the cash rate by 40 basis points to a conventional metric of 3.50%, coupled with a stated intention to hold the policy rate steady over the period ahead will be on the table," said Gareth Aird, CBA's head of Australian economics.
ANZ economists, +25bps
"This [high inflation] cements a 25 basis point cash rate hike in February and supports our view of another 25 basis point hike in March, especially if we see a solid print for December wages in mid-February as expected,” said Catherine Birch, ANZ senior economist.
The ABS' wages growth data for the December quarter is scheduled for release 22 February.
NAB economists, +25bps
"NAB sees the cash rate increasing by 25 basis points in February and March to a peak of 3.60%,” said Taylor Nugent, NAB economist.
"The assumed cash rate path is likely to be similar to November, which had a peak of around 3.50% in mid-2023 and 3% by end 2024.”
Calls to pause among social and housing groups
While representing different interests, both the Australian Council of Social Service (ACOSS) and the Housing Industry Association (HIA) have called for a pause in cash rate increases.
The end message is the same however: it's hard on borrowers and housing.
Cassandra Goldie, ACOSS CEO
Ms Goldie said rate rises run the risk of putting households out of jobs and out of their homes, and warned against the blunt instrument of RBA cash rate hikes.
"Wages aren't covering the essentials for many in our community right now, but the situation is much more dire for those without wages who are relying on income support," she said.
"Given the effects of last year's rapid and substantial interest rate hikes are yet to be fully felt, now is the time for the RBA to pause and take stock.
"The government should instead tackle inflation by addressing price rises at their source.”
ACOSS called on the government to rein-in inflation by: putting price caps on the private rental market; reducing energy costs; subsidising more childcare and dental health services; and offering more jobs and training programs.
Tim Reardon, HIA chief economist
Mr Reardon said lending for the purchase and construction of new homes has fallen to a 10-year low, which has a dire knock-on effect for tradies and the construction industry.
"It is concerning that this downturn to date doesn't reflect the full impact of the RBA's rate hiking cycle of 2022," he said.
"There are significant lags between a change in the cash rate and its impact on the economy.
"Industry needs stability, and the RBA won't achieve this by sending the housing sector through boom-and-bust cycles.
"We don't want to see a housing downturn gain momentum. Official data on the impact of interest rates if very lagged and appears that it is much easier to strangle the economy than it is to kick start it."