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Head of Australian Economics at ANZA David Plank said the bank now expects the Reserve Bank of Australia to lift the cash rate by 15 basis points to 0.25 per cent.
The RBA is due to hand down its latest decision on monetary policy next Tuesday at 2:30pm.
“We’ve changed our call following the higher than expected CPI. Now looking for the RBA to hike by 15bp in May,” Mr Plank said.
“The RBA’s preference has been to wait until it has the wages data as this is “consistent with its announced framework”, but we think today’s data makes it hard to argue this is the right approach.”
Of particular concern was fuel, which showed the largest annual growth in inflation since the 1990 Iraqi invasion of Kuwait.
As Mr Plank alluded to, the RBA had been “patiently” waiting for sustained inflation between two and three per cent.
The trimmed mean – an adjusted figure the RBA was using a reference point – has lifted to 3.7 per cent, well above the target range.
Many economists are also pondering the implications of the RBA raising interest rates during a Federal Election campaign.
The RBA is an independent central bank. It is accountable to the Parliament for its actions and in some circumstances it consults with the Australian Government – but the government cannot tell the RBA what it should do.
Chief Economist at IFM Investors Alex Joiner said it is imperative that any change in the cash rate not be politicised.
“These data make it abundantly clear that the RBA should raise interest rates at its May meeting,” Mr Joiner said.
“Economists from all quarters should condemn anyone who seeks to politicise such a move.
“Should it not happen they should condemn the RBA for doing same.”