Yesterday’s rate rise by the Reserve Bank shows that governor Michele Bullock’s priority is staying onside with financial markets and inflation hawks in the media — well ahead of the economic interests of Australians. The rise is unjustified, and Bullock’s reasoning is based on a bizarre fear that wages growth might accelerate and a belief that many households are enjoying higher incomes.
The bank increased the cash rate by another quarter per cent to 4.35% on the basis that inflation was proving too persistent. That’s despite the CPI falling from 6% for the year to June to 5.4% in the year to September.
The inexperienced Bullock had painted herself into a corner with recent statements elevating inflation over other bank objectives and repeatedly insisting the bank had “low tolerance for inflation”. In her post-meeting statement yesterday, Bullock blamed the fact that “while the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected“. Moreover, she complained, the economy “has been stronger than expected over the first half of the year”.
But her statement takes a turn for the bizarre when she lists several “significant uncertainties”, including how “wages will respond to the slower growth in the economy at a time when the labour market remains tight”, and that if some households are struggling, “some are benefiting from rising housing prices, substantial savings buffers and higher interest income”.
This is worth digging into because it suggests both the ideology at work in the bank that is continuing under Bullock, and the flawed perspective on the economy of the independent (from government, not from outdated groupthink) central bank.
Australian Bureau of Statistics wage data shows wage growth actually peaked a year ago and has plateaued at 0.8% a quarter ever since — the idea that Bullock appears to be hinting at, that a wage-price spiral might yet develop because “the labour market remains tight”, seems ludicrous, especially for Australian workers who continue to endure substantial real wage cuts.
And Bullock appears to be suggesting asset-rich baby boomers and cashed-up self-funded retirees are offsetting the sacrifices of working households struggling with high mortgage repayments and inflation — even though the national accounts show the household savings ratio at 3.2% is the lowest in 15 years. Where’s the “substantial buffer” that Bullock reckons is protecting us all?
Bullock’s statement was littered with updated forecasts but these will be withheld until the last statement of monetary policy, to be released on Friday — part of a continuation of the RBA’s un-transparent ways despite the recent review of the bank calling for a dramatic overhaul of the bank’s communications.
There was nothing stopping Bullock from holding a media conference this afternoon to explain to Australian workers why they are to be further punished with rate rises that cannot affect — indeed, might even exacerbate — key sources of inflation such as rents and energy prices.
Instead, working people will be left to wonder why they must continue to be hammered over inflation driven by factors well beyond their control, including burgeoning corporate profits, while the RBA lectures them that wages growth is dangerous, some households are having a good time and economic growth, at 0.4% in the most recent quarter, is too strong.
Bullock, on the other hand, will presumably be happy she’s given the inflation hawks and vultures some red meat — freshly ripped out of the lives of ordinary Australians.
Is the RBA putting other interests before the needs of Australian workers? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
Unelected, well-paid, and elitist bureaucrats who are never held to account for inflicting pain on ordinary Australians for dubious reasons (appearing before Senate Estimates is not about being held to account).
Democracy, don’t you love it? These are the same people who will benefit from Stage 3 tax cuts but say nothing about the inflationary pressure this will create. All you have to do is work for the same institution for 25+ years, and then you can act like God.
if you think that a 4.35% cash rate is inflicting pain, you must be a MIlleniel or Gen Y
Gen X and previous generations can easily recall their parents/themselves paying 17-19% mortgage rates, which makes today’s 5.5-6% look laughably low
can the adults pls re-enter the debate?!
Yeah I remember that, I was a kid though. Back then the market was geared to it and housing prices were far more appropriate. The previous generation to my parents were not profiteering through the housing market to anywhere near the extent that theirs and even my generation has. We also weren’t letting people borrow so closely to the hilt to afford housing in a market like this.
To some extent I supported rates coming up a bit, but ultimately it doesn’t really matter what the rate is, gotta look at the whole.
Strange how the “on mortgages a fraction of the size” and “alongside rapidly rising wages” are always left off these sorts of statements.
Anyone capable of high school maths would prefer the property market and interest rates of the ’80s, and that’s before thinking about the capital gains since that have ranged from large to staggering.
At least some of us Gen X and prior can also remember how a family with an average income (eg: a teacher) could afford to buy a freestanding house (on what would today be an “enormous” block) and have it paid off by 30. Dual-income families were looking at holiday houses as well or huge houses on acreage.
The RBA’s standard response of hiking interest rates, while banks go on to record mega profits and major corporations and major retailers continue to avoid paying tax on their earnings through the various barely legal options available to facilitate tax minimisation, shows that the real drivers of inflation are allowed to continue making the problem.
Again, the links between corporate political donations and the concept of “state capture” come to mind when wondering why the Government (and the RBA) cannot look to other solutions that will have less impact on the population and reduce the need for workers to seek higher wages in order to provide life’s basics.
Maybe evidence of our property Ponzi and obsessions needing to be reined in? Still a competition of a mass of boomers vs. millennials, while the latter lack voting power?
More vague when they do not specify which inflation, suggesting it’s (broadly) wages, but there are other ways and means of dampening wages growth (not for much longer*) with diluted union coverage, award compliance etc., simply raise the SCG Super Contribution Guarantee by another point?
*Not sure if unions and/or employees have realised the path of power they are entering of potentially higher wages due to demographic decline; boomer ‘bubble’ transitioning to retirement (increasingly many now have hefty super accounts to splash around) while since 2009 working age has been kept up by temporary residents churnover (via NOM being counted into ERP est. resident pop), though with restricted work rights eg. international students.
Because they’re not, and you’ve answered why yourself:
And worker leverage gained by boomers existing, is more than lost by immigrants entering.
Any worker leverage gained by boomers exiting, is more than lost by immigrants entering.
More MB, SPA & RW MSM slogans masquerading as evidence and analysis, also not interested in empowered employees? More about obsessiveness, narcissism and authoritarianism?
‘And worker leverage gained by boomers existing, is more than lost by immigrants entering’ (source for that, or we just believe you?)
No the so called ‘immigrants’ caught under the NOM e.g. students, have work restrictions, and majority do study full time vs. mass of the permanent population working age (who are the real target of the right).
Can you show evidence to support the changing dynamics over time i.e. trends on related metrics? Presumably not, as it’s not supported by ever increasing old age dependency and declining (below replacement) fertility rates.
https://data.oecd.org/chart/7fhS
Meanwhile your preferred demographic & immigration ‘experts’ at MB are raging at any credible analysis now Dr. Abul Rizvi; being subjected classic nasty nativist and Orwellian doublespeak, accusing Rizvi (Indian born) of being ‘racist’, pathetic.
Happily claiming that a reduced workforce increases worker bargaining power, but steadfastly refusing to admit the corollary that an increased workforce reduces worker bargaining power is a great example of cognitive dissonance.
Of… what ?
Again, you link to the same website and offer not the slightest amount of explanation, analysis or insight about it. Just boilerplate rhetoric that anything except a MOAR PEOPLE Ponzi Scheme is disastrous and the usual ad hominem.
When they reverted to Bullock, another long-time institutionalised RBA doyen, it rather proved they were out of step and out of ideas. There is a lot of innovative thinking going on the world of economics about the ‘inflation threat’, none of which appears to have permeated the walls of the RBA, where the thinking hasn’t changed since the early days of inflation targeting three decades ago. And of course all the bank economists, who are essentially glorified marketing people for the institutions they work, just speak for the bond holders, not the population. Ordinary people once again wear all the risk, but the bond market gets protected. Neoliberalism carked out 15 years ago, but zombie-like it continues to lay waste to our societies. If you want to see why the inflation ‘scare’ is totally blown out of proportion, read Isabella Weber. https://www.newyorker.com/news/persons-of-interest/what-if-were-thinking-about-inflation-all-wrong
Dog love you, Crikey, BK and GD. I listened in vain for some, any, words of sane analysis of this stupid, unnecessary, damaging rate rise on the ABC this morning (Wednesday). About a quarter of a way through Jane Hume having been given free rein to fume senselessly that “the government needs a plan”, I punched it off. This followed listening to RN Drive’s guest “independent economist” on Tuesday arvo on the way home saying absolutely nothing of interest or value about the rate rise, certainly not coming within a million miles of questioning anything at all or providing anything remotely resembling analysis or critique. So thanks are due once again to independent media. The only problem with that, of course, is that the bulk of Joe and Sally Public get their “news” and non-analysis from the MSM.
The phrase ‘ordinary Australians’ is now used to describe those with mortgages of half a million plus. Words, and economic commentary, have lost all meaning.
A half million dollar mortgage won’t even buy you a very ordinary house, in probably 1/3 to 1/2 the country.