RBA to commence tightening in H2 2018 - NAB

Alan Oster, Group Chief Economist at NAB, notes that the combination of higher underlying inflation and early evidence of wage growth will force the RBA to embark upon a fresh tightening cycle by H2 2018. 

Key Quotes

 National Accounts data for Q3 2017 again highlighted the divergence between the business and household sectors in Australia.

Economic growth should see a moderate improvement next year, to 2.9% in annual average terms (although momentum should slow as the year progresses), driving some further lowering of the unemployment rate to 5.2% by end-2018.

Further employment gains will help to narrow the gap between business and households spending, although our forecasts for wages suggest only a glacial improvement in consumer spending, particularly if the softer housing market has an impact on wealth effects.

Underlying inflation is forecast to pick up only slowly, which together with early evidence of higher wages growth should be enough to see the RBA commence tightening in H2 - we have 25bp hikes in August and November pencilled in.

This would take the cash rate up to 2%, a level which is still considered stimulatory.