ANZ becomes the last of the Big Four banks to forecast a May rate hike

ANZ has become the last of Australia’s Big Four banks to forecast a May rate hike following another bad set of inflation numbers.

Adam Boyton, ANZ’s head of Australian economics, said the latest January inflation figures meant the Reserve Bank of Australia was now likely to increase the cash rate by 25 basis points to 4.1 per cent on May 5.

“We are changing our RBA call and adding a 25 basis point hike in May,” he said on Thursday.

Headline inflation grew by 3.8 per cent in the year to January 31 while underlying, trimmed mean inflation, without volatile price items, climbed by 3.4 per cent.

Both measures were well above the Reserve Bank’s 2-3 per cent target in Australian Bureau of Statistics data released on Wednesday.

“With a series of upward inflation shocks over recent quarters and less deceleration in the January trimmed mean than we expected, we now see the most likely path of policy being a 25 basis point rate hike at the May RBA board meeting,” Mr Boyton said.

“Beyond that we see the cash rate remaining at 4.1 per cent for an extended period.”

The Commonwealth Bank, Australia’s biggest home lender, and Westpac changed their forecasts in the first week of February after the RBA raised the cash rate for the first time since November 2023, taking it to 3.85 per cent.

NAB had been forecasting a May rate hike since December last year.

A May rate rise would follow the release of March inflation data and would add $119 to monthly repayments on an average, $736,000 mortgage.

Treasurer Jim Chalmers hinted the Federal government would be making spending cuts in the upcoming May Budget to ease inflationary pressures when asked about the prospect of another rate hike.

“Well inflation was steady in January but it’s higher than we’d like,” he told ABC Radio National on Thursday.

“We’re upfront about that. I don’t make predictions about future movements in interest rates, but I assure your listeners that the government is very focussed on this inflation challenge. It’s a big part of our thinking in the lead up to the budget in May.

“There will be more savings in the Budget, we’ve made that clear.”

The futures market sees two more hikes in 2026 that would take the cash rate to 4.35 per cent and undo the effects of the RBA’s rate cuts in February, May and August last year.

In January, annual goods inflation accelerated to 3.8 per cent up from 3.4 per cent as prices for clothing and footwear surged by 5.6 per cent following the end of those pre-Christmas Black Friday sales.

Fashion accessory prices soared by 12 per cent.

“What was perhaps more surprising was the strength we saw around clothing and footwear, particularly around women’s and men’s clothing and some stronger prices coming through in terms of accessories,” Westpac senior economist Justin Smirk said.

“Are we seeing margin rebuilds in the country or are we seeing margin expansions?”