Following the stronger-than-expected CPI inflation reading in Q1, Australia’s most vocal interest rate hawk, economist Warren Hogan, projected that the Reserve Bank of Australia (RBA) would lift the official cash rate three times by the end of this year.
Hogan wavered after liaison meetings with businesses across the nation suggested consumer spending “stepped down big time from mid-April”:
This view was confirmed by the April retail sales data, which recorded the weakest annual growth in more than three decades outside of the pandemic, despite the strongest population growth rate in around 70 years:
Hogan told Sky News on 20 May that the RBA was unlikely to lift the cash rate again amid soft consumer spending [my emphasis]:
“Bracket creep alone has taken $41 billion out of household budgets in the last two years, that’s a pressure that’s there, so even though the RBA hasn’t raised rates this year, and only raised them once this financial year, we can still see the soft retail spending because of that bracket creep”.
“They’re not going to raise rates while the consumer’s this weak even if employment remains strong and even if inflation is just bouncing around at the top of that sort of 3% to 4% level”.
However, after last week’s stronger than expected CPI indicator reading for April, Hogan is the last remaining economist tipping further rate hikes from the RBA:
“The sense I got from Mr Hauser was that the RBA is much more prepared to be patient and make a trade-off between inflation and employment. But historically, it has not worked when you’ve got serious inflation in the system”, Hogan told the AFR.
“They’re probably going to have to wait to August before raising rates,” he said, citing an economy operating “at capacity” amid high labour costs and acute shortages of skilled workers”.
Later on Wednesday, the ABS will release the Q1 national accounts, which are expected to show that annual GDP growth has collapsed to its lowest level since the early 1990s recession, despite the strongest population growth in more than 70 years.
Assuming the national accounts end up being as weak as economists expect, the rhetoric will probably swing back to rate cuts.
Warren Hogan has chosen to go it alone and die on the rate hike hill.
In doing so, he will come off as either misguided or a genius, depending on which way the RBA chooses to go.
