- Data this week showed consumer sentiment collapsed in November and is at very low levels, consistent with major economic dislocations.
- The local data flow ramps up in the week ahead, with the focus on wages growth and employment.
- We expect the Wage Price Index increased by 0.9%/qtr in Q3 22 and the unemployment rate rose to 3.6% in October.
- Offshore, the monthly activity data for China will print, where we expect to see continued impact of COVID containment measures.
- Inflation data for Japan, Canada, and the UK are due. Retail sales figures for the UK and the US will also print.
The data flow this week was relatively light and centred around survey measures of consumers and businesses. The surveys showed that both business and consumer sentiment fell. Consumers continue to feel much more pessimistic than businesses. But given high household indebtedness and the aggressive tightening cycle, the RBA’s rate hikes so far will work to slow the economy and we expect to see the response from businesses deteriorate.
There was also further communication from the RBA this week, with a speech from Deputy Governor Bullock and testimony to the Senate committee. There was a reiteration of the RBA’s resolve to bring inflation back down to within the target range whilst preserving some of the gains in employment achieved over the past few years. As before, Deputy Governor Bullock noted “it is expected that further increases in interest rates will be required”.
But, Deputy Governor Bullock also alluded to the possibility the RBA may soon pause to assess the full impact of rate hikes on the economy, noting interest rates were at “a level now that is getting up to where, maybe, there might be an opportunity to sit and wait and look a little bit at what’s going to happen next”. Our central scenario sees just one more 25bp hike at the December Board meeting before the RBA pauses, though we acknowledge the risk is of a higher terminal rate. We may get a bit more colour in the November Board meeting Minutes, to be released next Tuesday.
The local data flow ramps up in the week ahead. There will be a focus on the labour market, with both data on wages growth for Q3 and the October labour force survey scheduled. Wages growth in particular is key, with the RBA having stressed that they are watching this very closely. We expect wages growth, as measured by the Wage Price Index (WPI), rose to 0.9%/qtr, taking the annual rate up to 3.0%/yr. Our expectation for the lift is based on our CBA wages tracker, which has closely mirrored the WPI and provides a timelier read on wages growth.
The October labour force survey may see employment rise by 15k, after a soft report the previous month showed virtually no employment growth in September. We expect that pace of jobs growth won’t be enough to prevent the unemployment rate edging higher to 3.6%. We also expect the usual sample rotations to play a role, due to softer labour market outcomes in the incoming rotation group relative to the outgoing rotation group.
Offshore, China’s monthly activity data will print. Tighter COVID containment measures there likely weighed on retail sales and disrupted manufacturing activity. But investment was likely supported by government stimulus. Inflation data is due in a number of economies. Inflation likely remained low in Japan, as a setback in consumer spending is expected to weigh. In Canada, we see downside risks to the inflation print, in particular given the softer-than-expected US CPI print overnight. But in the UK, price increases are not yet expected to show signs of peaking.
Retail sales for the UK and the US will also be released. While we expect a decline in the UK, retail sales in the US could rise because of gains in wage income and higher prices. In New Zealand, home price data and net permanent and long-term migration and visitor data is scheduled. Housing market activity and prices are expected to have remained weak.
CBA’s Global Economic and Markets Research (GEMR) team publishes a wide range of economic and financial research each week covering the latest data, trends, policy developments and topical issues in Australia and other major economies. To access these publications please visit the GEMR website.
Our Economic Expert
Stephen Wu is an economist in the Australian Economics team having joined from the Reserve Bank of Australia in 2021. He has more than three years of experience as an economist covering both the Australian and global economies. He holds a Bachelor of Commerce in Economics (Honours) and Finance and a Bachelor of Arts degree from the University of Sydney.