Australia Q1 Wage Price Index gains attention, dips could raise the odds of an August cut

RBA’s May Minutes were released today and they reveal no sense of urgency for the Bank to cut rates. Minutes revealed that "members discussed the merits of leaving interest rates on hold but decided on balance that a cut would help return inflation to target over time.

Focus of the RBA minutes was around the Bank’s downgraded inflation forecasts. The minutes highlight the Bank’s uncertainty over the inflation outlook, and its concerns about the second-round impact of lower inflation on wages growth. The extent of the downgrade to the inflation forecasts in the SoMP strongly supports further easing. That said, the discussion around the possibility of waiting for further data suggests a lack of urgency.

"Don’t read too much into the lack of an explicit easing bias in the minutes. This is normally the case in the press release and minutes following a rate cut. We continue to expect another cut at the August meeting." said Felicity Emmett, Head of Australian Economics at ANZ.

Given that the change in the RBA’s inflation forecasts centered on changing dynamics in wages and unit labour costs, it is worth noting that Staff Forecasts embody the expectation that growth in the Wage Price Index could stabilise around current quarterly levels. In this context, tomorrow’s Q1 Wage Price Index will be keenly watched. This index is at record lows and further dips could raise the odds of an August cut.