What will the inflation data mean for rates?

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**Carrington Clarke** (0:35)
Fresh data out today shows prices are rising slower than they were earlier in the year, but the rate didn't fall as much as expected, and it's still well above the Reserve Bank's target. Does that mean the bank might be forced to hike rates even further? Meanwhile, Canada has loaded its tariff cannon to aim at its southern neighbor. Will it light the fuse? Welcome to ABC Business Daily.
I'm Carrington Clarke, and today I'm joined by a very special guest.

**Diana Mousina** (1:06)
Diana Mousina from AMP.

**Carrington Clarke** (1:08)
Thank you so much, Diana, for joining us. I've been wanting to get you on the show. It's great to be able to do it on inflation day. You haven't had a huge amount of time to process all the data.
So thank you for joining us so quickly after it, we wanted to get this episode out as quick as possible. So, I mean, the headline is that we've seen inflation fall from 3.8% down to 3.5%. That's above what most economists were estimating the numbers would be. The trimmed mean, which people often talk about being the Reserve Bank's preferred measure because it strips out some of those volatile elements, is sitting at 3.6%.
I just want to go for top level analysis. Is this evidence that the three interest rate rises we've already seen haven't been enough and will the Reserve Bank be forced to hike even further, do you think?

**Diana Mousina** (2:01)
I think it suggests that we probably need another rate hike. The increase in the trim mean definitely concerns me.
And some of the components also look a little bit too high, particularly in things like dwelling construction costs. We know that that's been a problem for the past six months, but the broader issue is really that in the past 12 months, we've seen this continued increase in the trimmed mean, which is basically the underlying rate of inflation. And I just think it's way above the RBA's comfort level. And we've actually now revised up our estimate for the September quarter inflation figures. And that's now looking like it's going to be above the RBA's own forecast. So it's going to be a problem for them. And I think it will be hard at upcoming meetings, especially after we get the quarterly inflation data, for the RBA to argue that they're still on track with their inflation forecast.

**Carrington Clarke** (3:02)
And do you think it's likely then that we will see a hike at the next meeting, which is at the end of September? So we will have more inflation data just before that meeting, is that right?

**Diana Mousina** (3:11)
Yeah.

**Carrington Clarke** (3:12)
Or do you think it's more likely it will happen in November?

**Diana Mousina** (3:15)
We get another monthly before the next meeting. But our base case has been that we get another rate hike in November and that will follow the usual quarterly inflation data. And we know that there's still some issues with the monthly trimmed mean. That's why the RBA prefers to look at the quarterly, which they have a really long time series for. Maybe there are just funny things that are going on with the monthly numbers which can move up and down. So I think that they would probably prefer to wait for the quarterly.
Also because that would give them more time to assess what's going on in the labour market and to see if there is actually any more movement on impacts of prior rate increases. Plus they probably want to see what's happening to property prices, if they're falling even more or the big falls have started to moderate. I mean, that's what the daily data suggests. But I think they probably want to buy themselves a bit more time rather than really trying to put a massive handbrake on the economy right now.

**Carrington Clarke** (4:15)
What did you make of the minutes that we had out yesterday from the last Reserve Bank meeting? It was a unanimous decision to keep it on hold, but there does seem to be some disagreement within the members who get to vote about whether or not or how quickly they might need to raise rates even further. How much should we read into those minutes? And do you think that did potentially raise the chance of there being a rate hike either in September or November?