Just how much contempt for ordinary Australians do Reserve Bank governor Michele Bullock and the RBA board have? Not merely did the RBA defy evidence of a comatose economy and refuse to cut interest rates yesterday, but Bullock also says a rate cut wasn’t even discussed.
Bullock’s doveish rhetoric in her post-meeting statement and press conference — the board was “gaining some confidence” that inflation was easing — aren’t worth a hill of beans to working households. It will now be at least another two months before any interest rate cut, while Bullock and her staff kick back and enjoy a summer holiday.
According to yesterday’s statement, the RBA’s central rationale for continuing to smash the economy is that “the level of aggregate demand still appears to be above the economy’s supply capacity”. This is the same justification Bullock trotted out for the central bank’s stance two weeks ago, when she said “the level of demand in the economy is above the ability of the economy to supply the goods and services demanded”.
But in the intervening period, we saw the September quarter national accounts. As the Bureau of Statistics put it, “private demand through household consumption and business investment were weak and had no contribution to GDP growth.” Even with public sector demand, growth was a pitiful 0.3%.
Bullock’s insistence that there’s still too much demand is thus clearly at odds with economic reality.
At least she deigned to notice that “growth in output has been weak”:
National accounts for the September quarter show that the economy grew by only 0.8% over the past year. Outside of the COVID-19 pandemic, this is the slowest pace of growth since the early 1990s. Past declines in real disposable income and the ongoing effect of restrictive financial conditions continued to weigh on household consumption spending, particularly on discretionary items.
(Gee, Michele, if only you were in a position to do something about those restrictive financial conditions?)
But lest you be misled that demand might not be too high, she added that “more recent information has suggested a pick-up in consumption in October and November”. This is a lovely reserve example of Keynes’ (Churchill’s, Samuelson’s, Anonymous’) famous maxim: what does Bullock do when the facts change? She refuses to change her mind and goes cherrypicking for other, more suitable facts.
The November business survey from NAB — the longest and most respected survey of its type — has a very different picture of November from the “pick-up in consumption”.
Business confidence fell sharply in November, reversing last month’s gains and is now back well below average at -3 index points. Business conditions also softened in the month, with notable declines across most industries.
If there’s a “pick-up” beyond consumers trying to save money by doing their Christmas shopping on Black Friday, then businesses that actually have to operate on planet Earth, rather than in the RBA’s neoliberal fantasy, aren’t aware of it.
Remember, Bullock’s entire obsession with the level of demand — which the economic commentariat insists is an implicit rebuke of government spending — is based on a profoundly flawed understanding of what has been driving inflation since the pandemic. As Stephen Smith, Deloitte Access Economics partner, wrote in his comment on the decision:
As last week’s national accounts data revealed, there is little private demand in the economy. But as we have been saying for months, inflation is not always a demand-led phenomenon. The latent inflationary forces in the economy like escalating insurance premiums and rents are related to external factors like climate change and the economy’s supply capacity. Higher interest rates won’t change this.
Au contraire, says Bullock — there is too much demand in the economy and interest rates need to remain high to smash it.
This is not a central bank that understands what’s going on in the economy. It is not a bank that understands (from the vantage point of its comfortable Martin Place digs in Sydney) how ordinary Australian workers and small businesses without the security of a government job and generous pay and super are struggling. It is not a bank genuinely curious about what is driving phenomena like inflation. It is not a bank that wants to know if its ideological model of the world accords with reality.
It is, however, a bank that is actively harming the national interest.
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