The RBA’s Statement of Monetary Policy is out and it sees…wait for it…Futureboom!
Overall, the forecasts are little changed from those presented in the February Statement on Monetary Policy. Growth in the global economy has been solid. Global inflation remains low, but is expected to increase as spare capacity diminishes, particularly in some major advanced economies. Indeed, there is a risk that inflation will pick up more quickly than is currently expected, which would have implications for monetary policy decisions and financial markets, as discussed below. Other important uncertainties around the global outlook include the potential for an escalation of trade tensions and the risks around the ability of Chinese authorities to balance the difficult trade-off they face between growth and managing other objectives, such as containing financial stability risks.
The starting point for domestic final demand growth is somewhat stronger than previously expected because there appears to have been more momentum in household consumption than suggested by initial estimates. Growth in the economy is expected to be around trend in the near term and to increase to be above 3 per cent for the remainder of the forecast period. Consistent with this, employment is expected to grow a little faster than the working-age population and the unemployment rate is expected to decline gradually, to 5¼ per cent. In this environment of diminishing spare capacity, wage pressures are expected to build and underlying inflation is expected to increase gradually from close to 2 per cent currently, to be above 2 per cent by the end of the forecast period. However, as discussed below, there continues to be considerable uncertainty about how much spare capacity there is in the economy, how quickly it might decline and how this might translate into wage and inflation pressures.
Futureboom! comes with neverflation:
But believe it or not Martin has raised his core inflation outlook for next year to 2% and driven up the AUD.
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Next move in rates will be down as Futureboom! never arrives.
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.
