Weeoo, weeoo, weeoo. Via The Pascometer:
The RBA has been predicting higher wages growth ever since before it started weakening. Year after year after year, wages have been about to run higher, according to the RBA – but they haven’t. That the governor is reduced to a wan “some pick-up” might indicate how confidence in that permanent forecast is fading.
The bank’s commentary keeps clutching at hints of green shoots on the wages front, only to find they’re straws.
The harsh and undeniable reality is that two of our three biggest employers – construction and retail – are getting weaker and there’s no reason to believe it’s about to change. Yes, infrastructure overwhelmingly financed by the states is strong, but housing approvals are continuing to slide.
…Governor Lowe’s statement is perplexing is that it contradicts itself.
In his concluding paragraph, Dr Lowe reports that the board recognised “there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target”.
But earlier in the piece: “The unemployment rate has been broadly steady at around 5 per cent over this time and is expected to remain around this level over the next year or so, before declining a little to 4¾ per cent in 2021.”
So there you have the biggest mystery. After our inflation rate collapsed in the March quarter, the RBA says we have to have a stronger labour market to get inflation up, but then predicts no improvement in the labour market until some time in 2021, and then not much at all.
The present evidence is that the unemployment rate would need to be at least 4.5 per cent or less before it could be expected to produce anything like inflationary pressure.
I’ve never seen the Reserve Bank produce a document with such obvious internal inconsistency.
Congratulations RBA. When you have sunk this low it is truly game over for your credibility.
Pascoe is spot on. The one thing the RBA has always done well is follow the data. If its forecasts were proven wrong it always shifted position.
Yet the last statement was so begrudging in its easing bias that it appears that the Bank is now being run on soured emotion instead of data. It has given up on every single indicator bar one lagging point, a manifestly stupid position:
The Board judged that it was appropriate to hold the stance of policy unchanged at this meeting. In doing so, it recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target. Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings.
Can it be that the Bank just can’t let go of its pride? Each new forecasting humiliation only makes it hold tighter to failed supposition. That is fatal in markets and to the country.
Should we blame MB for the Bank’s crazy defensiveness? We have brought a new glare of accountability to an institution traditionally surrounded by sycophants. We know that the Bank hates “those MacroBusiness bastards”. That won’t have been helped as we kept getting more right as they kept getting more wrong.
Surely not. The governors can’t be that pathetic.
No matter. The RBA has failed. It must be reformed and cleaned out. It is a matter urgency for Labor because no government can operate effectively with a broken central bank. The RBA and APRA must be spliced back together and new leadership injected, though that is obviously very difficult amid a busy reform agenda.
The easiest quick fix is to have a debate about how the RBA’s mandate should be changed. Most of that discussion has so far focused on lowering the inflation target, but that is just a way for its mates to protect the bank’s failures.
A far better idea is to force the RBA to pay attention to underemployment in its charter.