Last week’s surprise drop in the unemployment rate to 4.2 per cent rekindled speculation of a hike in the cash rate before long.
That speculation could become further heated when the December quarter inflation number is released on Tuesday.
Frydenberg said it was the RBA and its independent board that manages interest rates and monetary policy.
“But they have made it very clear that they are reluctant to increase interest until they see inflation sustainably higher and until they see higher wage growth as a result of that lower unemployment rate that we are seeing,” he told the Nine Network on Monday.
Economists forecasts point to a one per cent increase in the December quarter consumer price index, largely reflecting higher petrol prices and the increased cost of new housing.
This would take the annual rate to 3.1 per cent, up from three per cent as of the September quarter, and just above the RBA’s two to three per cent target.
The more interest-rate sensitive underlying measure of inflation – which smooths out sharp price swings – is forecast to rise 0.7 per cent in the quarter.
This would take the annual rate to 2.4 per cent and up from 2.1 per cent as of the previous quarter, which was the first time it had been within the target since 2015.
Such a result would be stronger than the 2.25 per cent the RBA had been expecting at this stage, with a level of 2.5 per cent not predicted until mid-2023.
But HSBC chief economist Paul Bloxham believes that even if inflation surprises on the upside, he doubts the RBA would respond with an interest rate rise just yet, particularly when wages growth remains subdued.
“A tight labour market should generate more wages growth,” he said.
“However, even with a low unemployment rate, it might take time for wages growth to lift.”
As such he sees cash rate hikes beginning in 2023 rather than 2024.
Meanwhile, the Mastercard SpendingPulse report showed retail sales increased 4.6 per cent in December compared to the same time last year and were 10.4 per cent higher than the 2019 pre-pandemic level.
However, Australian Retailers Association CEO Paul Zahra said sales were likely to be impacted in the new year with Omicron causing significant disruptions.
“The new year has delivered new challenges for retailers in the form of Omicron with tens of thousands of people being forced into isolation every day,” he said.
“That’s taking a huge toll on the industry and small businesses in particular, where just a few absences can wipe out an entire store’s workforce.”Jump to next article