Revelations in minutes of interest rate drought breaker

If people want to know what's in store for interest rates, there are two places they should look.

Minutes from the Reserve Bank's February board meeting show members highlighting the importance of inflation and wages data to its decision to cut the cash rate after the sharpest hiking cycle in a generation.

"The strongest reason to lower the cash rate at this meeting was based on the signal from recent trends in inflation and wages," the minutes read.

The RBA will be watching data around these indicators most closely over the next few months - quarterly inflation figures, particularly the trimmed mean, and the wage price index.

Governor Michele Bullock has repeatedly cited the central bank's concerns that tightness in the labour market could cause inflation to re-accelerate.

But despite unemployment stable at historically low levels, the wage price index has been steadily easing, prompting RBA staff to consider whether they might have overestimated labour market tightness.

Their analysis includes two possible reasons why this might be the case.

Firstly, that factors unrelated to the limited availability of labour had caused wages to rise. This could have been caused by worker demands for higher pay increases to restore real wages "after the material reduction following the surge in inflation".

Another possibility is that difficulties in measuring productivity in the non-market sector, where most of the growth in employment in recent years has come from, obscured the true extent of labour market tightness.

Ultimately, the board minutes indicated the centrality of wages data, rather than employment data, in their assessment of the labour market's impact on inflation.

"The staff's assessment is still that the labour market is a bit too tight to be consistent with the target mid-point, whereas the board is seemingly putting more emphasis on price outcomes, and risk management in making that call," said JP Morgan chief economist Ben Jarman.

ANZ head of Australian economics Adam Boyton said it highlighted "the importance of the wage price index over coming quarters".

The next wage price data will be released by the Australian Bureau of Statistics on May 14, while the next quarterly inflation print drops on April 30, ahead of the RBA board's May 19-20 meeting.

Mr Jarman expects data to show inflation continuing to trend downward and to convince the board to cut again in May.

While ANZ still believes the Reserve Bank won't cut rates again until August, offshore risks to growth - such as a looming global trade war - could necessitate earlier easing, Mr Boyton said.

Australia's economy is expected to accelerate this year from a low base in 2024.

Retail sales grew 0.3 per cent in January, the statistics bureau revealed on Tuesday. This is consistent with a pick-up in consumption as households return to real income growth, said NAB senior markets economist Taylor Nugent.

NAB upped its prediction for December quarter GDP growth to 0.7 per cent after net exports came in stronger than expected, at 0.2 per cent over the last three months of 2024.