CBA (ASX:CBA) economists expect inflation sooner than RBA

Australia’s largest bank provides an alternative economic outlook to the RBA’s forecast.
The post CBA (ASX:CBA) economists expect inflation sooner than RBA appeared first on The Motley Fool Australia. –

Senior economists from the Commonwealth Bank of Australia (ASX: CBA) expect inflationary conditions in the Australian economy to be met earlier than the RBA’s initial forecasts, a new report from Commsec details.

In the release, economists Craig James and Ryan Felsman spell out the Commonwealth Bank’s views on the cash rate, the jobless rate numbers moving forward, interest rates decisions, and inflationary expectations for the coming periods.

Let’s take a look at what the report captures in closer detail.

Inflation sooner than RBA expectations

Commentary within the report alludes to the RBA’s expectations of holding the cash rate at 0.10% all the way until 2024:

The Reserve Bank (RBA) doesn’t expect to start lifting the cash rate until 2024 at the earliest.

But James and Felsman retort the RBA’s posture on the cash rate, stating:

However we believe that the risks are tilted to unemployment surprising on the downside and wage and price inflation surprising on the upside.

The research also indicates the RBA ideally wants to observe the jobless rate fall towards 4% (considered full-employment of the economy by RBA standards). Only when this occurs, the RBA views wage growth of ~3%.

In fact, according to the report, CommSec analysts view the following three “pre-conditions” necessary to occur before an early hike to the cash rate:

Annual inflation sustained between 2-3%
Growth in annual wages lifted to 3%
Full employment as measured by the jobless rate ~4%.

“And when these [three] conditions hold, the RBA expects inflation to sustainably hold between 2-3%,” the duo state in the report, pointing out the RBA also doesn’t expect this to occur until 2024.

However, CBA economists anticipate these circumstances to align earlier, estimating the RBA will begin normalising the cash rate from the back end of 2022 if, and only if, the three conditions outlined above are met.

Should these conditions align before 2024, the CBA economists are confident the Australian economy will absorb inflationary pressures as early as 2022, ahead of the RBA’s schedule.

Additional commentary

The report also outlines additional CBA expectations regarding the outlook of the Australian economy.

The economists view the jobless rate to finish this year at 4.5%, before declining to 4% at the end of 2022.

Consequently, the analysts believe annual wage growth will expand from 1.5% to 2.9% by the end of 2022, reaching 2.4% by the end of 2021.

The bank also expects the Australian economy to grow by 3.9% in 2021-22, but notes several risks factors:

Risks to the forecasts include virus outbreaks; slow vaccine take up or vaccine shortages; policy mistakes on the removal of support measures; Chinese political tensions and extended delays in the re-opening of foreign borders.

Finally, the economists “conservatively forecast” the S&P/ASX 200 Index to hover within the ranges of 7,400 to 7,700 by the first half of 2022.

The post CBA (ASX:CBA) economists expect inflation sooner than RBA appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

More reading

Forget CBA! Here are the 5 best performing ASX bank shares of FY21

Leading brokers name 3 ASX shares to sell today

Here’s what leading brokers are saying about the Commonwealth Bank of Australia (ASX:CBA) share price in July 2021.
PEXA (ASX:PXA) share price jumps to new heights on first ‘normal’ trading day
ASX 200 Weekly Wrap: ASX finishes FY21 on a high

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!