Michael Pascoe

Pistol Pete Costello bans Crikey from his
budget lockup, but he seems happy enough to run our line yesterday that higher
banana and petrol prices don’t necessarily mean Australia has to have an interest
rate rise next month.

Cossie was rather desperately preparing the
ground to blame the RBA for the looming rise. “Desperately” because he knows
the pain is going to be felt most in the Sydney and Melbourne marginal seats
where the nervous nelly backbenches will be happy to blame the Treasurer for
their consequent pain.

Unfortunately for Cossie, in the instant
analysis rush of Crikey’s deadline yesterday, we were too hopeful in our
contrarian view. On first blush, the petrol-soaked banana skin looked like it
might be worth a slip, but not a fall. Looking a bit longer though and, yes,
there’s a chance of doing a Jessica (https://www.smh.com.au/news/people/pregnant-rowe-falls-down-stairs/2006/07/27/1153816288820.html)
down the monetary steps. As Macquarie Bank’s Rory Robertson has put it to
clients.

“The RBA is not about to hike because banana prices just
quadrupled or because fuel prices jumped further in Q2. The RBA is set to
hike again because its best measures of trend inflation show a material and
somewhat unexpected acceleration. Policymakers probably are keen for more
insurance against the increased risk of higher inflation in the medium term.”

But Robertson goes on to make an
interesting point about an unknown – how
successful the government’s workplace laws will be in preventing wage rises:

Central
bankers are professional worrywarts: the RBA will be anxious that headline
inflation jumping from 3% to 4% threatens to lift inflationary expectations
and, in turn, boost demands for “catch up” wage rises.

**At
the same time, several policy initiatives from Canberra are working
against stronger wages growth. Specifically, the removal of the
“no-disadvantage test” in wage-setting, the weakening of trade-union
power and “unfair dismissal” laws, and record levels of
“skilled” immigration all work to put downward pressure on wages
growth (and the unemployment rate, and upward pressure on employment and
participation rates).

So the government that promised to keep
interest rates down might succeed by bashing workers over the head. Meanwhile,
it’s worth remembering interest rate rises aren’t bad news for everyone. Net
lenders, i.e. the rich and those baby boomers who are well set up for
retirement, won’t mind much thanks to a little more interest for them from
their term deposits (although their share portfolio won’t appreciate it).

And who were the biggest winners from
Costello’s last budget, the one he kept Crikey out of? The rich and the better
off among the baby boomers.