Australia rate hike brought nearer by inflation, wages – central bank

div classBodysc17zpet90 cdBBJodivpBy Wayne Colep

pSYDNEY Reuters – Australias central bank is nearer to raising interest rates for the first time in more than a decade as inflation accelerates and a tightening labour market nudges wage growth higher, minutes of its April policy meeting showed on Tuesday.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pThe Reserve Bank of Australia‘s RBA Board saw core inflation lifting above the bank’s 23 target range in the March quarter and more firms were expecting to pass on price rises to consumers. Wage growth was still lagging but likely to pick up as the unemployment rate fell to 4 and below.p

p“These developments have brought forward the likely timing of the first increase in interest rates,” the minutes showed. “Over coming months, important additional evidence will be available on both inflation and the evolution of labour costs.”p

pData for consumer prices are due on April 26 and analysts suspect it will show core inflation jumped by 1.0 or more in the first quarter to lift the annual pace to at least 3.2.p

pThat would be the first time core inflation topped the RBAs 23 target band since early 2010, making it harder to justify retaining rates at emergency lows of 0.1.p

pKey figures on wages for the March quarter are out on May 18, while data on gross domestic product on June 1 would provide broader evidence on labour costs.p

p“While the Q1 wage index will still show subdued wage growth, we think that will be trumped by rapidly rising inflation and were sticking to our longheld forecast that the Bank will start its tightening cycle in June,” said Marcel Thieliant, a senior economist at Capital Economics.p

pMarkets, too, are wagering heavily on a rate rise to 0.25 at the RBAs June 7 policy meeting, and have almost seven more hikes to near 2.0 implied by year end. p

pThat aggressive outlook in part reflects expectations the U.S. Federal Reserve will hike by 50 basis points in both May and June, adding to pressure for other central banks to follow.p

pCentral banks from New Zealand and Canada both recently hiked by half a point citing the need to restrain inflation expectations.p

pAny RBA rate rise would be a shock for local borrowers given they have not seen an official increase since 2010 and households are sitting on record levels of mortgage debt.p

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pp Reporting by Wayne Cole Editing by Christopher Cushing and Kenneth Maxwellp

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