NAB tips September cash rate hike, CBA says November

Three of Australia's big banks are now backing a cash rate hike this year, with NAB saying it will occur next month.

ANZ, CommBank, and NAB have changed their cash rate forecasts in the wake of hotter-than-expected July inflation data on Wednesday.

ANZ was first to change its call to a November cash rate increase, just hours after the data was released.

CommBank economists initially stuck with their forecast there would be no further cash rate increases in 2026.

But less than 12 hours later, Australia's biggest bank also changed its outlook, joining ANZ in tipping a 25-basis-point November cash rate hike to 4.60%.

Shortly after, on Thursday morning, NAB said it was now expecting a hike to the cash rate in September after initially saying it was reviewing its position.

That leaves Westpac as the big four outlier (for now), acknowledging the risk of a November rate hike had increased but holding to its position the RBA would remain on hold this year.

'RBA to lose patience': CommBank

CommBank released an early morning update, announcing its changed call and saying the risk sits with an earlier rate hike in September.

Chief economist Belinda Allen described the July CPI - delivering a headline inflation figure of 3.5% and unchanged underlying inflation of 3.6% - as "the final straw".

"While inflation showed signs of moderating over the first half of the year, it has remained too high and the RBA Monetary Policy Board has remained on edge," she said.

"More recently these discussions have become more acute and signalled a low tolerance for upside surprises to inflation."

She said CommBank's previous call for the Reserve Bank to keep the cash rate on hold for the rest of the year was based on the view that inflation would continue to ease as growth slowed.

"But the path back to the RBA's target band [inflation between 2-3%] was always expected to be gradual and left little room for upward surprises to inflation or growth," she said.

Ms Allen said it was the "persistent inflation" that swung CommBank's judgement to change its call.

RBA 'sense of urgency': NAB

In outlining its case for a September hike, NAB economists noted the RBA was "wrong footed" last year by a resurgence in inflation.

"This has left them with little or no flexibility with respect to inflation outcomes," they said.

NAB economists also questioned whether one hike would be enough, raising the prospect of both September and November rate hikes.

However, it said the RBA would be attuned to downside risks to the labour market and the housing market with one further rate hike the most likely outcome.

July CPI 'always a risk'

CommBank said it had flagged that volatile items were the main reason June quarter inflation was lower than forecast and a bounce back was to be expected.

But Ms Allen said the "July CPI surprise" was broader than simply a reversal of unusually weak fuel and travel outcomes in June.

While noting one monthly result needed to be interpreted cautiously, she said the renewed strength across a range of underlying and domestically influenced prices suggests the pace of disinflation was stalled.

The biggest contributors to July CPI inflation were housing, seeing a 5% rise, and food and non-alcoholic beverages, up 3.2%.

However, perhaps the biggest surprises from the July inflation data came from discretionary spending on categories such as restaurant meals and domestic holidays.

Ms Allen said based on recent Reserve Bank communications, she expects the upside surprise to CPI will see the board hike the cash rate.

She quoted the RBA itself on the rationale:

"The Board will continue to do what it considers necessary to bring inflation sustainably back to target increasing the cash rate target further if upside risks materialise." (bolding added by CommBank)

CommBank's update listed the scheduled speeches of senior RBA figures in the lead-up to the monetary policy board meeting on 28-29 September.

These will be even more closely scrutinised for any clues or signals as to how the Reserve Bank may proceed.