'Little prospect' for RBA hike despite stubborn inflation

The Reserve Bank of Australia (RBA) will almost certainly leave the policy rate unchanged when it meets next week, according to economists.

GSFM investment strategist Stephen Miller said there was "little prospect" of a change in messaging from the "not ruling anything out" mantra the board has stuck to in recent months.

"In the wake of the data flow since the board last met, that seems appropriate. Inflation remains stubbornly high," Miller said.

Miller said the April monthly consumer price index (CPI) indicator exhibited ongoing "stickiness", as did the price and labour cost indicators contained in the NAB May Monthly Business Survey.

"Those indicators are suggestive of some upside risk to the RBA's May CPI inflation projection, which was itself revised upward from February," he said.

Miller said slightly offsetting perceived risks was a satisfactory labour market, but he said there was some suspicion it might be more fragile than it appears after March quarter accounts affirmed activity growth was weak.

"The board has in the past expressed concern that tepid activity growth will ultimately be reflected in a softening labour market and (presumably eventually) in declining inflation," Miller said.

"Arguably, in the current environment uncertainties facing central banks everywhere are unusually elevated. Some of that uncertainty can be sheeted home to the unique nature of any recovery following on from the pandemic."

Miller said the most likely scenario is an extended pause in any policy rate adjustment until the RBA is convinced that its current trajectory for the return of inflation to target is secure.

"That argues for a policy rate cut toward the end of the year or sometime in the first half of 2025," Miller said.

"A sharper than anticipated slowdown resulting in a greater than anticipated dislocation in the labour market may bring the timing forward a little. But for the time being monetary policy remains in suspended animation."

Commonwealth Bank head of Australian economics Gareth Aird also believes the RBA will keep interest rates unchanged this month.

"The June board meeting comes in the wake of the 2024 Federal Budget, which was a little more expansionary than anticipated.  But we do not think the Budget has shifted the dial on the RBA's assessment of the economic outlook," Aird said.

"RBA governor Bullock stated that she does not think the $300 energy bill relief will have, 'a material impact on reducing (underlying) inflation, but it is also unlikely to make inflation worse'."

Finder head of consumer research Graham Cooke said a rate cut was still unlikely given persistent inflation. "Despite some signs of a weakening economy, inflation remains above target, making a rate cut unlikely," he said."Nobody saw COVID-19 or the war in Ukraine coming, and these have been the driving factors behind our current situation. "What the next few months have in store will determine whether Aussie homeowners emit a sigh of relief or anxiety by year's end."