Deutsche Bank ‘surprised’ as it drops August rate hike call after inflation hit less hard than feared

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Deutsche Bank ‘surprised’ as it drops August rate hike call after inflation hit less hard than feared

Deutsche Bank has walked back its call that the Reserve Bank will lift rates next week while ******* a warning shot on the reliability of monthly inflation data.

The big investment bank now reckons the nation’s benchmark interest rate will stay at 4.35 per cent for the rest of 2024.

It follows fresh inflation figures released on Wednesday showing prices were accelerating, rising 3.8 per cent in the year to June.

But there was better news in the Reserve Bank’s preferred measure — trimmed mean, which strips out volatility — falling marginally to 3.9 per cent.

“Australia’s underlying inflation was a lot softer than we expected in (the June quarter),” Deutsche Bank economist Phil O’Donaghoe said.

He said the trimmed mean measure was only marginally ahead of the RBA’s forecasts.

“We don’t think that is enough of a forecast miss to prompt a rate hike in August, so we now see the cash rate on hold in August, but also for the remainder of the year,” Mr O’Donaghoe said, adding he was “surprised . . . to write that paragraph”.

Commentators were spooked five weeks ago when monthly inflation data for May showed a sharper rise — with prices up 4 per cent.

The monthly data is seen as less reliable than quarterly, however.

“There are serious questions to be asked about the usefulness of the monthly (consumer price index) indicator, especially the extent to which anyone can rely on the monthly trimmed mean pick,” Mr O’Donaghoe said.

“That’s the lesson for forecasters.”

UBS ditched its August hike prediction on Wednesday.

Others were more reluctant, with Judo Bank’s Warren thinking the RBA’s next movement will be up, perhaps later this year.

Financial markets now show a negligible chance of a hike at the central bank’s August meeting.

ANZ reckoned the RBA would keep a “hawkish tone” — talking up the inflation ****** — but would likely cut rates in February.

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