Properly, plus ça change — the brand new period of Reserve Financial institution conferences and post-meeting communication, which opened to glowing and infrequently facile evaluations from the mainstream media, sounds loads just like the previous period.
Within the final assembly beneath the previous RBA board regime in December, governor Michele Bullock’s post-meeting assertion talked about inflation 22 occasions. Yesterday’s assertion managed 23. That’s regardless of the large fall in inflation within the December quarter — oh, and regardless of the financial institution materially lowering its inflation forecasts in its February assertion of financial coverage (SMP), launched (sensibly) similtaneously the assembly assertion.
Again in November, Bullock and her forecasts thought inflation would nonetheless be 3.5% by the yr’s finish. Now it’s anticipated to be 3.2%. GDP development was anticipated to be 2%; now it’s 1.8%. Family consumption was anticipated to be 2.1%, now it’ll be 1.7%. Unemployment was anticipated to rise to 4.2%, now it’s 4.3%. Its forecasts for what occurred within the December quarter final yr have additionally been revised downward.
The RBA thinks the financial system has materially softened, however Bullock is banging on about inflation greater than ever. There additionally stay massive questions over our main financial driver, China. “There additionally stays a excessive degree of uncertainty across the outlook for the Chinese language financial system,” the SMP famous — which can but make 2024 even gloomier.
It’s now clear that the RBA’s fee rise in November, after showing to pause fee hikes after the final rise in June, was not merely wholly pointless however actively broken the financial system for no profit besides to the inflation galahs that feast off the distress of bizarre Australians. And as Michael Pascoe identified, Bullock isn’t achieved with punishing households with mortgages — the chunk that larger rates of interest take out of incomes will proceed to extend as these of us with fixed-rate mortgages attain the top of their fastened interval and soar as much as the variable fee.
The SMP and Bullock’s post-meeting assertion may but lay the groundwork for Bullock holding rates of interest punitively excessive for for much longer regardless of quickly falling inflation. The assertion features a really bizarre forecast that labour productiveness is about to surge from its present damaging degree to three% by June after which settle at simply over 1% yearly by the yr’s finish.
The place, precisely, is that this dramatic surge going to return from? Not from the mining sector, which workout routines a vastly outsized position in nationwide productiveness knowledge — we’re seeing nickel and lithium costs plunging, which can nix the anticipated funding surge there. Perhaps from agriculture? El Niño has been a lot wetter than anticipated, however that merely means an enormous hit to agricultural manufacturing hasn’t materialised. We’re actually not about to revert to a producing financial system, given the velocity with which our well being and caring sectors are increasing. Australians are already working the longest hours they ever have. Perhaps the rise in unemployment will assist?
What occurs when this anticipated productiveness increase fails to indicate up? Bullock stated in her assertion that wages development was OK so long as productiveness returns to its long-run common. However as we’ve written again and again, Bullock and the RBA seem mystified about productiveness and stay caught in a world the place you solely needed to sack just a few employees and lower firm tax for productiveness to magically rise.
The entire thing — the choice, the statements, the media convention, the monomania about inflation — have the air of a theatre manufacturing by which a chattering elite pat themselves on the again for a way intelligent they’re, whereas bizarre Australians take care of the results of their poor selections.