The RBA minutes are out and although it never spells things out, it is easy enough to read between the lines:
…members noted that inflation had eased in the March quarter, confirming the staff assessment that inflation had passed its peak.
Despite this, inflation in Australia remained too high and broadly based…
Inflation had eased in the quarter for a number of goods-related categories, including consumer durables, groceries and new dwelling purchases.
However, input cost pressures (both labour and non-labour) and strong demand continued to contribute to strong price increases for many services.
Rent inflation in the CPI continued to rise, with an influx of net overseas arrivals over preceding months adding pressure to rental markets that were already strained.
However, growth in unit labour costs, which had been strong in prior quarters, was expected to be a key driver of underlying inflation over the forecast period.
Energy costs were also expected to increase over the coming years, although the Government’s Energy Price Relief Plan would reduce the size of the increase in 2023/24 and provide targeted support to low-income earners and small businesses.
Rent inflation was expected to continue to pick up over the coming year or so and add materially to inflation over the forecast period, including because of the recent increase in net overseas migration.
Members considered a scenario in which goods prices fell over coming years, unwinding a portion of the preceding rise; in this scenario, inflation would return to the middle of the target band by mid-2025.
However, this outcome was not considered particularly likely given trends to date and the absence of broad-based falls in goods prices internationally.
Members also reviewed recent developments in asset markets – in particular, they noted the depreciation of the exchange rate and the increase in housing prices.
While several factors had contributed to these developments, the decision to hold interest rates steady in April was likely to have contributed.
Although the Board does not target asset prices, members agreed that movements in asset prices provide relevant information and need to be considered when assessing the outlook for activity and inflation.
The bank goes on to say that wage gains are “stabilising” which leaves us with mass immigration driving rents and house prices and the gas cartel driving electricity bills as the primary culprits for the last rate hike (and any further).
Together they add roughly 2.5% to the CPI. But it will get much worse if current trends persist.
As MB keeps saying, when the RBA has to fit all inflation under a 3% cap then whatever is rising more will have to be offset by other stuff rising less or falling.
Albo action on the immigration front and inaction on the energy front is now directly responsible for further interest rate hikes.
Households are already getting smashed in real income terms. Now, Albo is adding debt-servicing costs to their pain.
I wonder what will awaken them to this profound macro mismanagement.
