Australia's NAB expects RBA to raise policy rate by 25 bps in Feb

The economy is already at trend growth, and private final demand is running stronger than the RBA anticipated.

The NAB business survey shows that capacity utilisation is elevated and that there is breadth to this dynamic at an industry level. Businesses reported less pressure on margins over recent months.

Inflation accelerated in the third quarter (Q3), and NAB has forecast a 0.9-per cent quarter on quarter (QoQ) for trimmed-mean in Q4, suggesting inflationary pressures have persisted.

If realised, this will imply a period of five quarters in which the annual rate of core inflation runs at 3 per cent or higher. Moreover, it would represent a 15 basis points surprise relative to the RBA’s most recent forecast for the Q4 outcome.

Taken in conjunction with stronger growth outcomes and evidence of capacity constraints starting to bind, the bank believes an inflation outcome of this magnitude will force the RBA to execute a modest recalibration of monetary policy in the first half next year, an NAB release said.

ALCHEMPro News Desk (DS)