Inflation data and RBA minutes to reveal rates clues

A Pivotal Week for Rates

A crucial inflation reading will be the focus of a big week in economics that could rule out or keep alive the chance of more Reserve Bank rate hikes. After easing in June, inflation figures on Wednesday are set to show fuel prices bounced back in July.

ANZ Bank economists Madeline Dunk and Jasmine Zheng have forecast the headline consumer price index to rise 0.8 per cent for the month. However, a softer electricity print compared to 12 months prior will see the annual figure ease 0.6 percentage points to 3.2 per cent, they predicted.

The RBA's Stance

The re-escalation of the Middle East conflict in July means the RBA is mindful that the battle against inflation is not over yet. After the bank's board held the cash rate at 4.35 per cent at its August meeting, governor Michele Bullock said there would be no hesitation in raising rates again if inflation exceeds its forecasts.

"Recent RBA communication has focused on upside risks to inflation," Ms Dunk and Ms Zheng said in a research note. "A high 0.3 per cent month-on-month trimmed mean print in July is likely to be a little uncomfortable for the RBA and would keep the November meeting live."

Fuel Prices and Inflation

Fuel prices are expected to have risen six per cent in July, according to NAB senior economist Taylor Nugent, reflecting part of the government's fuel excise cut rolling off and higher oil prices due to a re-closed Strait of Hormuz. "Fuel prices are set for a larger monthly increase in August, which should support a re-acceleration in year-ended headline inflation next month," Mr Nugent said.

Other Domestic Data

While inflation is the headline event on the domestic data front, analysts will pore over minutes from the RBA's last board meeting when they are released on Tuesday. Household spending figures for July to be released by the Australian Bureau of Statistics on Thursday will also be closely watched. RBA Deputy Governor Andrew Hauser said household spending has exceeded expectations in recent months, which was pushing up demand and inflation.

"Although consumer confidence in surveys is very low, consumption growth has not been as weak as might be expected, partly because households on average have buffers," Mr Hauser said. Construction data will also be released on Wednesday and capital expenditure figures on Thursday, providing further clues about the strength of the economic impulse.

Market Overview

Despite the focus on domestic data, international markets also played a role. On Friday, the Dow Jones Industrial Average rose 0.98 per cent to 53,277 points, while the S&P 500 gained 0.43 per cent to 7,674 points and the tech-heavy Nasdaq gained 0.44 per cent to 26,180 points. However, the main US indices returned weekly declines due to investor jitters over fluctuating government bond yields and lack of clarity on progress in the Middle East. The S&P and Nasdaq snapped their three-week winning streaks while the Dow registered its second consecutive weekly loss.

In Australia, share futures are up 41 points, or 0.45 per cent, to 8,465, while the S&P/ASX200 fell 24.9 points on Friday, down to 9,058.9 points, and the All Ordinaries lost 28.8 points. The upcoming week's economic data, particularly inflation and the RBA minutes, will be key for the direction of future rate decisions.