If there is one thing that gets the old MB goat, it’s a bit of historical revisionism. Alan Kohler gives us an epic dose today in his Double the egg on the RBA’s face:
The Reserve Bank’s economics department had a bad year in 2011, and as a result the board is now high and dry with an official cash rate that is obviously wrong. It needs to come down by 0.5 per cent, to 3.75 per cent, next week.
In its February 2011 Statement on Monetary Policy, the RBA had a GDP growth forecast for the year ended December 2011 of 4.25 per cent and for June 2012 of 3.75 per cent. CPI inflation for June 2012 was forecast at 2.75 per cent, the same as underlying inflation.
But then in May the bank’s economists came over all bullish and upped their GDP forecast for June 2012 to 4.25 per cent, while leaving the December forecast at 4.25 per cent. CPI inflation for June was cut to 2.5 per cent. In August the GDP forecast was up again to 4.5 per cent and while the CPI forecast was left at 2.5 per cent, the underlying inflation forecast was jacked up to 3 per cent.
In November wobbles started to appear and the GDP forecast was cut to 4 per cent and underlying inflation back to 2.5 per cent. In February this year the GDP forecast for June 2012 was back to 3.5 per cent but underlying inflation was actually raised to 2.75 per cent.
So the RBA’s economists have made two big mistakes: they got 2011 GDP growth horribly wrong and raised their inflation forecast in February for this financial year even as GDP was falling short.
Maybe. The RBA’s forecasts were wrong, yes, as MB documented so fully at the time. But the RBA did not raise rates all year despite its forecasts and cut in November and December. Over all, given the need for financial stability, as well as growth and inflation concerns, the RBA got the balance right in my view.
But where’s the revisionism? Well, here’s what Kohler wrote on July 28 last year in Brace for a blunt RBA whack, when MB was backing the Bill Evans campaign for rate cuts:
The June quarter consumer price index is a disaster.
It means the “cautious consumer” that Glenn Stevens was talking about on Tuesday and the high Australian dollar have not turned into lower inflation; the disinflation from the GFC is finished and Australia’s dreadful performance on productivity over the past decade is being brutally exposed.
The RBA will now have to whack us all over the head with the blunt instrument known as interest rates.
The financial risks in Europe and the US, the strong currency and weak domestic consumer demand should have led to an interest rate cut in the next few months. The case for this presented last week by Bill Evans of Westpac looked convincing.
In fact, it looks like Business Spectator’s Adam Carr was correct all along: inflation is on a one-way trajectory upwards and interest rates are about to start moving up again, probably in November, possibly earlier.
Readers will recall that MB christened both “Mad” Adam Carr and Christopher Joye – Business Spectator’s two main economics commentators – “bullhawks” at the time, for their extreme narrative about imminent inflationary pressures.
Never let the truth get in the way of good story, eh.
