Don’t panic! The RBA has time.
Yesterday’s monthly inflation number showed further progress on inflation. From Westpac:
Note that the monthly figure was -0.1%. By category:
- Food is progressing slowly.
- Alcohol and tobacco are tax driven.
- Clothing is plunging.
- Housing is a problem, most notably rents and cost of building. Utility bill subsidies will land big in July.
- Oil helped but won’t next month.
- Services are slowing except finance though, again, that is not economy-related.
As Westpac says:
Importantly, the mid-month of each quarter provides us an important update on household services and so May sets the tone for much of this group for the quarter.
Overall, quarterly surveyed services continue to show some moderation with the experienced mixed across categories.
For example, meals out and take away foods was 4.2%yr higher in May, down from 5.4%yr when last surveyed, while “other household services” increased 2.8%yr in May, up from of 2.3%yr.
On balance, goods are still disinflationary while services are still slowing. This is not a terrible mix and should continue as wage growth falls away.
Assistant Governor Christopher Kent sounded satisfied yesterday with the state of financial conditions:
Looking across a range of measures shows that monetary policy tightening has led to restrictive financial conditions. However, the extent of this varies across different sectors and also within sectors.
Households have been responding to higher interest rates. While households with mortgages are significantly affected, and quite directly, consumption growth is weak for most people.
Smaller businesses, and businesses with higher leverage, are also facing financial pressures, much more so than many larger businesses.
Notwithstanding these differences, restrictive financial conditions are helping to slow the growth of demand, thereby bringing the level of demand into better balance with supply. This is contributing to the decline in inflation, which is to the benefit of all Australian households and businesses.
Demand is compressed enough and the supply side is responding. Inflation will keep falling.
We have another monthly report before the deflationary burst of bill subsidies lands in July. The RBA gets the quarterly report on July 31 and then meets August 5-6.
I still don’t think there’s enough here to hike again amid the above balance netting out a weak economy.
Unless tax cuts lift demand!
