As we describe in more detail here, the disinflation story took a positive turn in November, surprising the market to the downside. But this is most likely just a temporary blip before another recovery in Q1 2024 and we think the NBR will be quite cautious in celebrating it. What’s more, November’s lower-than-expected inflation reading came after a series of higher-than-expected numbers. In fact, inflation is now below the key rate, possibly a prerequisite for the Bank to start cutting rates. But with real financial conditions looser (due to excess liquidity), strong wage growth that will boost consumption in the future, and larger-than-desired budget deficits in the coming years, we don’t think policymakers will consider that the latter figure is sufficient and We do not expect them to significantly lower the emphasis on the bullish pressures and bullish risks ahead.
This year, after the impact of the increased tax burden occurs, in our view, wage pressures will be the key factor counteracting disinflationary pressures, barring another major external event. The latest wage figure showed a strong year-on-year growth rate of 17.1% in October in the private sector. While the private sector may not be able to maintain that pace this year, we continue to believe double-digit wage growth is here to stay in 2024 amid stronger gains in the public sector. Overall, these wage advances are, in principle, still not consistent with the NBR’s target range of between 1.5% and 3.5%. This adds weight to the idea that any major hint of moderation is likely to be left out of this meeting.