At times you have to wonder if members of the Reserve Bank executive and board have met anyone who actually lives in a typical Australians household, because, if you listen to the utterances of the new governor of the Reserve Bank and read the minutes of the RBA board meeting you would think households are going tickety-boo.
On Monday the latest retail trade figures for October were released. This was the month prior to the Reserve Bank raising rates because it was worried there was too much demand in the economy. So, you would expect, given the RBA is across all the details and has its finger on the pulse, that it must have had reason to think retail spending was still going solidly, if not strongly.
Wrong. It fell.
If the graph does not display click here
And it fell in all categories except food.
If the graph does not display click here
The RBA minutes for the November meeting noted that “recent retail sales data suggested that spending had held up better than had been expected a few months earlier”.
Seriously? Better than expected?
The most recent retail data they had when this discussion occurred was the September figures. These showed that there had been a boost in spending of household goods mostly due to better-than-expected weather in September, which sent everyone to hardware stores.
But in that quarter we bought 1.7% fewer goods than we had the year before. Australians were, in effect, spending more to buy less.
That’s odd, given Michele Bullock in Hong Kong this week told a panel that despite the “political noise and noise from the general public” of 13 interest rates rises, “households and businesses in Australia are actually in a pretty good position” because of “large savings buffers” that are “largely still intact”.
That belief is behind the reasoning to keep raising interest rates.
Well, good news, RBA: it seems households are feeling the pinch because in October we spent less to buy less. And that was in a month in which people though the cycle of rate rises was over.
The Reserve Bank must be so happy now that household spending is as weak as they expected it should be when they decided to pause the rate rises. Pity they couldn’t wait a month to see what was going on. But hey, I guess you looked tough on inflation.
Now – about that inflation.
The latest monthly CPI figures came out on Wednesday showing prices actually fell 0.3% in October and annual inflation dropped from 5.6% in September to 4.9% in the 12 months to October. Guess it was a good thing the RBA decided to clamp down on inflation in … November.
The monthly data is pretty volatile, so it makes sense to look at the figures that exclude the most volatile items and also holiday travel, which can really bounce around depending on the month.
Even here we see a fall from 5.5% annual growth in September to 5.1% in October:
If the graph does not display click here
The monthly growth of this more stable measure saw an increase in prices of 0.17%. Certainly not as stunning as a 0.3% fall in prices when you include the big 2.5% drop in gas prices or the 7% fall in holiday travel costs.
But even if we were to continue to have that same growth for the next 12 months, we would end up with annual growth of 2%.
Now clearly that is unlikely, but if we were to have the same growth as we have had for the past six months for the next half year, we would be looking at 4% annual growth. Hardly a level that should have the RBA rustling its jimmies.
If we look at the trend in inflation growth since December, it’s clear we’re on a pretty steady path and one that gets us back to under 3% by this time next year:
If the graph does not display click here
Were that to occur it would actually be ahead of the RBA’s schedule. Although, of course, such a trend ignores the $21bn stage-three tax cuts coming into effect in July next year that will boost inflation and likely force the RBA to raise rates again.
But that aside, Australia’s inflation continues to follow the path of the United States. From December to July, Australia’s inflation growth actually fell faster than did the US, but since then both countries have been impacted by world events – especially oil prices:
If the graph does not display click here
On Tuesday next week, the RBA board meets to decide if it should again hit households. Nothing in the retail or the inflation figures out this week suggest it should. If anything, it all suggests they were premature in raising them earlier this month.
The day after that decision we get the latest GDP figures, and we will see how the impact of rate rises and the slowing of household spending has flowed through to the entire economy – an economy which we already know has been growing only due to population increases.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
