The Reserve Bank of Australia is widely tipped to hike interest rates again when it meets this week, as it tries to stamp out stubborn inflation that has only been inflamed by the war in the Middle East.
The RBA is expected to raise its benchmark rate by 25 basis points for a third straight meeting, taking it to 4.35%, according to a Reuters poll of economists.
Inflation across the Tasman has been above the central bank’s 2% to 3% target range since mid-2025, driven in large part by domestic capacity constraints.
“There’s certainly an inflation pressure point in Australia,” Harbour Asset Management portfolio manager Shane Solly told NBR. “[There are] some major labour constraints and that’s not going away in a hurry, even with quite a solid amount of immigration.”
Beyond this meeting, the market was pricing in two further hikes to interest rates this year, he said.
Solly noted that, like the Federal Reserve in the United States, there have been some divided opinions among RBA committee members.
The decision to increase rates in March by 25 basis points to 4.1% was not unanimous, with five members voting in favour of the increase and four members against.
Westpac Bank economist Luci Ellis, in a recent note, suggested the Monetary Policy Board (MPB) could not look through the effects of higher fuel prices as a result of Middle East conflict, as those higher costs were touching everything from building products to fast food.
“Together with the spike in both consumer inflation expectations and business survey measures of costs and prices, the March inflation data will have the RBA’s inflation warning lights flashing bright red,” she said. “The MPB will see an imperative to address high inflation despite the caution expressed by the minority voters in March.”
The RBA will deliver its decision on Tuesday.
Unemployment data in focus
The big item on the domestic agenda this week will be the release of first-quarter employment data from Statistics NZ.
The figures may only give a slight indication as to how the conflict in the Middle East is affecting the labour market, as they cover only about a month after the war began in late February.
Expectations are for the unemployment rate to hover at around 5.4% to 5.5%.
Harbour Asset Management’s Shane Solly.
“I think we’ve got to be pretty cautious about any data coming out from that period,” Solly said. “The data may actually look quite good, but markets are paying more attention to forward indicators.”
Such information may be gleaned from the latest read of the services sector, which makes up two-thirds of the economy, courtesy of Business New Zealand and BNZ Bank.
The Performance of Services Index fell into contraction territory last month, as did all of the main sub-indices, including employment, which suggests that firms are looking at firing rather than hiring staff.
“If you’re in [the] hospitality industry – they’re really under the gun in terms of seeing this pullback in activity,” Solly said.
Corporate agenda
On the corporate front, the most anticipated event on the calendar will be Briscoe Group’s annual shareholders’ meeting.
The retailer is an economic bellwether of sorts, and analysts will be paying close attention to what the company has to say about current conditions. “Mr [Rod] Duke and his team at Briscoe are some of the best retailers in the world and they will tell it like it is … So, if they’re slowing down, others will be doing worse.”
The company on Friday said first-quarter sales were up 1.37% to $180.8 million, with Duke – the company's managing director – saying the conflict in the Middle East and domestic weather events had affected consumer sentiment and foot traffic.
Last week, casino operator SkyCity cut its full-year earnings guidance as rising fuel prices dented patronage.
Whether other companies follow suit remains to be seen, with the real test coming later this month when a handful of corporates report their financial results.
Fisher & Paykel Healthcare, Ryman Healthcare, Infratil, Mainfreight, and Napier Port are all among the big names due to turn in their report cards for the period ending March 31.
Solly expects earnings to be solid, but the real interest will be given to each firm’s outlook statement. “Investors are actually watching for higher costs and also demand destruction, so you get a double whammy of costs going up and demand falls.”
The first cab off the rank is aged care provider Radius Care, on May 13.
