Inflation expectations already rising

Rising energy prices are set to lift Australian inflation further above the RBA’s target in the months ahead. And while consumer confidence has soured in response to soaring inflation, the high household saving rate should cushion the blow to spending and we still expect a strong rise in consumption this year. In fact, the RBA is becoming increasingly concerned that high inflation will cause inflation expectations to become unanchored. We think these concerns will reach a tipping point after the Q1 inflation data, prompting the RBA to hike rates in June.