With the Reserve Bank of Australia (RBA) intent on clobbering the economy in order to suppress inflation before it becomes embedded in the domestic economy, it will be closely watching economic indicators to guide it on how long and how hard it should hit households and small businesses.
“The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market,” governor Philip Lowe said in his post-meeting statement on Tuesday after hiking rates 0.5%. “The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time … the Board will be paying close attention to these various influences on consumption as it assesses the appropriate setting of monetary policy.”
That means the RBA will be watching every scrap of data in the coming months before deciding on the size of the next rate rise. But some data will be more important than others.
The first will be the size and structure of the Fair Work Commission’s decision late this month (the decision the government wants is a 5.1% increase for low-paid workers).
Then in the first week of July (and every month thereafter), there’ll be four important data drops: monthly house prices from CoreLogic, monthly retail sales, building approvals and new car sales.
The RBA will want to see house prices weaker across the entire country, not just in Sydney and Melbourne. Retail sales will provide a guide to what, where and how much people are buying — with the quarterly volume data to be watched extremely closely and compared to the price-based sales data. The RBA’s credit card data and survey data from the major banks will also be scrutinised — it is increasingly possible for the RBA to see real-time transaction data through the new payments platform.
Trade data — which can be safely ignored otherwise — will show where some household consumption is going in terms of imports.
Building approvals are already down 32% in the past year, so there isn’t much further to fall, but the bank will like to see it ticking over at current levels, taking pressure off the cost of a wide range of building products. Housing finance data has shown a fall of 0.3% in the year to April, with a 12.8% fall in the number of owner-occupied loans — but a 37% jump in loans to investors.
The RBA wants to see the latter start falling because it has been investor demand that has driven home lending and house prices in the past year, not new entrants and owner-occupiers (and it won’t mind seeing investors getting hurt, rather than first-home buyers).
The June quarter consumer price index (CPI), due at the end of July, along with producer price data at the same time, will also provide valuable data but by then will be a bit historical — as will the June quarter wage price index (WPI), where the long-promised increase in wages growth might appear, or prove yet another mirage conjured up by the RBA’s cherished “business liaison”.
The good old days when the Reserve Bank pleaded for wages growth to pick up, and insisted it would not lift rates until it did, now seem the stuff of ancient history. Yet it was only a few months ago.
