Michael Pascoe writes:


Just two weeks after the Reserve Bank Governor
maintained his interest rate tightening rhetoric before a parliamentary
committee, the RBA’s head of economic analysis this morning effectively shot it
down:

There was little evidence of wages growth accelerating and balanced
growth in the domestic economy should help prospects for continued expansion,
the central bank’s economic analysis chief said today.

Reserve Bank
of Australia (RBA) head of economic analysis Tony Richards said that while wage
outcomes are expected to remain firm, the major indicators of wages growth for
the December quarter suggested that there was no acceleration in growth.

“They suggest that wages growth has remained firm, although there
is little evidence that it is accelerating,” Dr Richards told the
Australian Industry Group forum in Sydney.

No acceleration in wages growth means no
rate rise – but that’s not the half of it. In the warm glow of the Howard-Costello
act’s decade on the stage, plenty of commentators have bought the generally
favourable spin put on yesterday’s national accounts figures. The trouble with such statistics though is
that they are all out of date.

The nice part in the December quarter story
was the way business investment has chimed in to pick up some of the slack from
the housing and consumer cooling, but it’s what business is going to do that is
important now, not what it’s done.

The NAB’s chief economist, Alan Oster,
pointed to business investment having peaked in his Outlook 2006 paper on
Tuesday. The NAB, as Australia’s biggest business banker, is in a better position than the RBA to
know what business is about to do.

Oster summarised the business outlook as
resources and construction going well, services doing OK, but the rest doing
less than OK. When consumers saw their house prices rising, they spent more,
but now they are reacting to stagnant and falling house values by saving more.
The NAB has seen a marked acceleration
in people paying extra amounts off their mortgages.

The overall picture that emerges is not all
that bad, but it means steadily rising unemployment everywhere except WA and Queensland. If
there was a Federal Opposition, that could make life more interesting for the
Howard-Costello team going into the next election. At least they won’t have
to worry about interest rates.