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is continuing under Bullock, and the flawed perspective on the economy of the independent (from government, not from outdated groupthink) central bank.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.
