Shadow RBA stopped clock right at last

Having completely missed the trajectory of monetary policy since its inception owing to a stubborn refusal to use the word “macroprudential”, the RBA shadow stopped clock today says (you guessed it) hold:

After the RBA’s decision in August to cut the cash rate to a historic low of 1.5%, there is good reason to pause. Unemployment fell slightly, but only because of a large increase in part-time employment. With consumer price inflation equalling 1.0% year-on-year, well below the RBA’s 2-3% target band, and wage growth a modest 2.1% year-on-year, there exist little immediate inflationary pressures. The CAMA RBA Shadow Board clearly believes that the cash rate should not be cut any further. The Shadow Board attaches a 57% probability to a rate hold being the appropriate policy setting. The confidence attached to a required rate cut equals a mere 5%, while the confidence in a required rate hike equals 38%.

Australia’s unemployment rate fell ever so slightly, to 5.7%, according to the Australian Bureau of Statistics, as did the participation rate, which stands at 64.88%. June’s (revised) increase in full time employment of 44,000, was completely reversed in July. Furthermore, part-time employment, after falling by 33,200 in June, increased by a whopping 71,590 in July. The overall increase in part-time employment, relative to full-time employment, may be cause for concern. While it may reflect a flexible, nimble labour market, it could also be a sign that the labour market is softening, capturing a degree of underemployment. The seasonally adjusted wage price index increased by 2.1% year-on-year in the second quarter of 2016, unchanged from the previous quarter.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.