There’s a pretty clear reason why the Reserve Bank yesterday ignored the demands for yet another interest rate hike from neoliberal extremists in the economic commentariat: it’s started to work out just how badly it has savaged ordinary Australians.
A paragraph from governor Michele Bullock’s post-meeting statement yesterday is worth quoting in full.
…Household consumption growth has been particularly weak as high inflation and the earlier rises in interest rates have affected real disposable income. In response, households have been curbing discretionary spending and maintaining their saving. Real incomes have now stabilised and are expected to grow later in the year, supporting growth in consumption. But there is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labour market.
Note the adverb and adjectives: “particularly”, “continued”, noticeable”.
The statement came just hours after the Australian Bureau of Statistics (ABS), in its report on the March quarter retail sales data, noted that sales volumes had fallen 0.4% in the quarter, “the fifth time in the past six quarters as consumers cut back on buying large household items such as furniture and electronic goods. The only rise in volumes over the past 18 months was the December quarter last year as extensive discounting from Black Friday sales boosted volumes.”
The 0.4% fall was worse than the market forecast for a fall of 0.3%. Sales volumes are 1.8% lower compared to their level in the third quarter of 2022. And it’s worse on a per capita basis: “Retail volumes on a per capita basis fell for a seventh straight quarter (-1.0%), down 3.6% compared to this time last year,” the ABS said.
In its May statement of monetary policy also released yesterday, the Reserve Bank downgraded its forecasts for economic growth, to 1.2% in the year to June and 1.6% by December, from previous estimates of 1.3% and 1.8%. And it slashed its household consumption forecasts: to just 0.1% in the four quarters to June, from 0.8% in February, and 1.3% across calendar 2024, compared to 1.7%.
In fact the RBA decided to ignore its own modelling, which suggested a brighter outlook for consumption. “The staff have applied downwards judgment to the model forecasts in the near term. In making this judgment, the staff have taken considerable signal from recent outcomes, where consumption growth has been weaker than expected.”
In other words, ordinary Australians, belted by a long succession of punitive rate rises, are pulling their heads in faster and harder than the econocrats’ models in Martin Place are telling them they should, and the RBA is scrambling to keep up. For the bank to persist with its modelling would have been a triumph of ideology over reality: just last November, it was confidently predicting household consumption of 1.6% across the year to June 2024, and 2.1% in calendar 2024. Those forecasts now look ridiculous.
That’s not the only reason we’re now looking at even lower economic growth for the rest of this year. Last Friday, AMP chief economist Shane Oliver warned on the basis of the goods trade figures for March that “Trade looks likely to be a big detractor from March quarter GDP growth, possibly by as much as 1 percentage point.”
Far from being the nightmare of “sticky” inflation that extremist economists have been clamouring about, the economy is struggling. All the more reason for Treasurer Jim Chalmers to resist calls to inflict even more damage with a highly contractionary budget.
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