Data screams at Lunatic RBA to stop hiking

The RBA has already overcooked the tightening cycle.

First of all, the inflation we’ve had so far is mostly in goods and much of that is imported:

The supply chain and commodity price inputs that drive up these prices are already deflating internationally. Falling prices will arrive in due course:

Those goods that are made in Australia, building materials most obviously, are also going to deflate as the housing construction bust intensifies:

The infrastructure boom is also about to top out

:

Moreover, the second wave of inflation, coming from the evil gas cartel, is also over so long Labor does what it should with tougher domestic reservation:

It must also be remembered that the huge terms of trade boost is not what it seems and is also crashing. The gas component is not an export for the east coast. It is an import of high energy prices and drained income with no taxes. Iron ore and coking coal are deflating with China’s structural property adjustment. Softs are deflating. Thermal coal is crazy but there’s no investment coming for that:

Other hot inflation reads in food and transport will also fall with energy, including oil for transport which is also now tumbling:

As we know, consumer confidence has been annihilated. Consumption will fall with house prices from here. Business investment will follow:

Inflation expectations have only returned to periods where Aussies did enjoy some decent wage growth. The RBA needs to keep this intact, not sink it again as it stupidly did post-2010:

Sadly, there is no wage pressure to worry about. What there is has been exaggerated by vested interests to hoodwink the gormless RBA. The CBA’s wage tracker, which leads the ABS’ labour price index and is derived from CBA accounts, shows that wage growth remains sluggish, growing only by around 2.5% in the year to July:

CBA wage tracker

Even NAB’s economics team has trashed its own business survey by doing a similar analysis using its own bank accounts, and also shows that wage growth was only around 2.5% in the June quarter:

The NAB is getting real-time data on whether its customers’ wages are going up, down or sideways…

It’s the first time the bank has used its customers’ data in this way. So, it began with the deposit account data of roughly a million customers, and its computer models whittled that down to 250,000 customers that has straightforward, measurable wage or income deposits.

Its results are remarkably consistent with the ABS’s results on wage growth.

That is, NAB’s analysis has found wage growth increased 2.5 per cent in the three months to June — up 0.1 per cent on the ABS’s measure for the March quarter. In other words, wage growth, it reckons, is barely budging.

This is contradictory to what the Reserve Bank is reporting.

The Albanese Government is also determined to crush wages with restored mass immigration pronto. The leading edge of this has begun as a deluge of cheap foreign labour lands in the form of international students.

Finally, the RBA faces a half trillion fixed-rate mortgage reset for the next three years. This embedded tightening will smash house prices regardless of what else happens now.

The Lunatic RBA said at its last meeting it is turning data-dependent. The data is warning that it has already overcooked the tightening.

Houses and Holes
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Comments

  1. The Travelling PhantomMEMBER

    The RBA knows better as nothing of this scare campaign by low interest rates addicts came to reality. And if inflation coming down its because they increased the rates.
    And by following the almighty FED the smartest of all CBs RBA must be doing the right thing.
    No point of those useless screams..
    Lay flat and accept your destiny!

  2. RBA’s primary mandate is to keep inflation within the 2-3% range and ensure stability of the currency so as not to import inflation from other parts of the world.They are doing a good job of it.

  3. The RBA needs to follow what happens internationally. The RBA is not the master of its own destiny and the Australian economy will have to lump it. By the way, higher rates are ultimately healthy as is the malinvestment shake out that will come.
    No one could claim the ‘growth’ we have had over the last 10 years has been in anyway healthy for Australian society.

    Bring it on.

  4. BoomToBustMEMBER

    Recession is the financial equivalent to an Australian bushfire, it’s a required part of the cycle in order to sustain a healthy system. If you don’t have constant smaller fires, when you get the bush burning it’s massive and devastating, killing much more than necessary or is good. The same will occur with this next recession / depression.

  5. When are you people going to understand that low interest rates is like heroin to an economy .Once you get addicted to debt its hard to get off until you overdose.Historically over a 100 year period the average interest rate sat around 7.5% and we survived.Now its the norm to have low interest rates only because governments are irresponsible& lazy.
    Another thing the RBA are doing the right thing in trying to combat inflation.If we don’t then just like Turkey with an inflation rate of 78% & Argentine an inflation rate of 54% we will be destroyed.
    So do we try and appease the housing lobby or save our economy?

  6. ErmingtonPlumbingMEMBER

    “Those goods that are made in Australia, building materials most obviously, are also going to deflate as the housing construction bust intensifies”

    I Got this in my inbox the other day,

    “RE: REDUCTION IN COPPER PRICING

    To Our Valued Customers,

    We are pleased to inform you that commodity pricing for copper has fallen this month. With our commitment to evaluating and adjusting prices based on market conditions, Tradelink will be reducing prices across our copper range by 7.77% effective today, 1st August 2022.

    In this inflationary market, we remain committed to working with manufacturers, vendors, and freight carriers to mitigate supply risk and minimise price impact where possible. We will strive to remain competitive; as key input costs reduce and supply constraints ease, we will adjust our pricing accordingly.

    Keeping You Informed of Price Movement
    Transparency of these price increases is critical for management of your business. We will provide regular communication of price movement via email. For your reference, our new B2B trade portal accurately displays your “live” price at any time. You can contact your local branch or Account Manager for instructions on how to link your trade account to the portal. In addition, forward notification of all product category increases can be found here: https://trade.tradelink.com.au/“

    Bloody hell!,…I’ve got a good scrap copper and brass haul I was planning to off load soon.

  7. pfh007.comMEMBER

    “..Data screams at Lunatic RBA to stop hiking..”

    I really hate it when I open a spreadsheet and the little rat bag screams! Though once you explain to SIRI that you are not the Lunatic Reserve Bank she will usually pipe down a bit.

    More seriously – what a load of poppycock.

    The RBA will stop raising rates when inflation from all sources (supply shocks, increased demand and inflationary expectations) is clearly subsiding and quite clearly it is not yet subsiding judging from the collection of speculations set out above.

    “..Moreover, the second wave of inflation, coming from the evil gas cartel, is also over so long Labor does what it should with tougher domestic reservation:..”

    “..Consumption will fall with house prices from here. Business investment will follow::..” In other words inflation pressures WILL fall as a result of raising interest rates but they haven’t yet.

    “..Inflation expectations have only returned to periods where Aussies did enjoy some decent wage growth. ” So the RBA should cut rates so as to really generate some inflationary expections and more inflation than the 6% we already have??? Bizarre stuff. Inflationary expectation are very painful to eradicate once they become established.

    “..Sadly, there is no wage pressure to worry about…” Why? because bankers say so!!.

    Oh well that is all good because we know the bankers never serve up self serving data. If 3.5% unemployment has not generated bargaining power for workers how low do you say it needs to go before it does? And why wasn’t anyone saying this for the last 30 years when every data shrieker was claiming NAIRU was about 5%.

    • GonzificusMEMBER

      “First of all, the inflation we’ve had so far is mostly in goods and much of that is imported” And by not lifting rates in lock step with the FED the RBA are stoking imported inflation. The US are at a 2.75% base rate now, the further away we get from their base rate, the larger the imported inflation will be.
      Poppycock indeed, talking their own book is what it feels like.

    • Even if there is no wage pressure that’s more reason to hike rates.

      Anything that makes inflation fall can also been seen as a real wage increase/a lower real wage fall. If workers don’t have bargaining power to negotiate nominal wage rises, maybe the RBA with rate rises can negotiate real wage rises at least.

  8. Keep raising for the sake of my children.
    If we stop now , the spruikers will pump house prices with their “it’s never been a better time to buy”

  9. From reading these comments its obvious who owns a house with a mortgage, and who wants to buy a house or investment property. (I am in the mortgage camp)
    The RBA increasing interest rates is un-Australian.
    Stevens has to go. He got it wrong telling everyone no rate increases until 2024. And now he got it wrong by massively and quickly increasing interest rates. Two wrongs to do not make a right. He doesnt get paid $1m to make mistakes. Labour will get rid of him, and can I suggest Pat Cummins (Australian cricket captain) as a suitable replacement.

    • Quantitative FleecingMEMBER

      Haha so true. Sounds like you have a big mortgage too. It’s sad that it ever got to this point though. If the system wasn’t so against renters and house prices hadn’t gotten so high we wouldn’t have this societal divide in the first place.

      • pfh007.comMEMBER

        “.. If the system wasn’t so against renters and house prices hadn’t gotten so high we wouldn’t have this societal divide in the first place…”

        The reason we have the problem is that so many people were willing to believe in magic puddings and magic money trees and there was NOOOOOOOTHING wrong with making absurd amounts of money from doing nothing more than sitting around and waiting for the next cohort to load up with even more debt and pay even more for existing assets.

        The Liberal Party and John Howard in particular read the Australian public perfectly. Offer them a pay later get rich scheme and enough of them will gobble down the nonesense that you will get to stay in government for decades.

        The only ‘divide’ that exists now is between those who want the show to keep rolling on and those that say “Sorry there is nothing that can be done when inflation is rising and unemployment is at record lows ….interest rates just have to rise”

    • Tbh higher interest favour anyone who doesn’t have a mortgage or one which is mostly paid off. I’m in this camp. Because not everything is about housing. In fact everything else ends up cheaper and easier as IR’s go up. The ability to earn money from savings/self sacrifice, higher AUD, cheaper petrol, cheaper goods than otherwise, etc.

      If it means cheaper goods than otherwise, less competition against the joneses with borrowed money (SUV’s, Jetski’s, etc), less frothy companies it makes life generally make more sense. A lot of things didn’t make sense such as company valuations, the amount of money people were spending, how certain people had so much money, etc etc when interest rates were that low.

  10. – But this based on the assumption that the RBA raised interest rates to fight inflation. And it doesn’t. The RBA – like the FED & RBNZ – FOLLOWS the 3 month t-bill rate.

  11. BoomToBustMEMBER

    We have been noticing businesses raising prices because of inflation, how much of this is simply a cash grab?

    How does one combat inflation from external sources outside the Australia economy (oil, gas etc) by raising rates?

  12. The pages of the thesaurus for “disaster”, “crisis”,”collapsing” and “crazy” words must be about worn out by now. What may happen if we get to the lofty interest rate heights of 2.5%?

    • innocent bystander

      you just put ‘very’ in front.
      as in ‘very collapsing’
      and then ‘more very’
      we have a long way to go before we get to ‘most very’.
      of course this depends on what triggers the google algorithms – cause, apparently this is the only reason for the hyperbole in the headlines. not sure of the reason for it in the articles….

  13. Until my rent goes back down to what is used to be pre-covid
    Until my grocery bill goes back down to what it used to be pre-covid
    Until my gas/electricity bill goes back down to what it was pre-covid
    Until house prices goes back dow to what it was pre-covid
    Until….
    Keep raising the rates to fix thing!

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