In his post-meeting statement on Tuesday, RBA Governor Dr Philip Lowe cited weakening household consumption and a tapering inflation rate of 6% as reasons for the pause.

"The Australian economy is experiencing a period of below-trend growth and this is expected to continue for a while," Dr Lowe said.


Warren Hogan, left, and Peter Tulip criticised the RBA's decision to leave the cash rate on hold at 4.10% in August. Images supplied.

However Warren Hogan, Judo Bank chief economic advisor, and Peter Tulip, chief economist at the Centre for Independent Studies, criticised the inaction, telling the Savings Tip Jar Podcast the fundamentals are still too hot.

"Last week's CPI was pretty good. But it's an absolute illusion; it was a one off soft quarter," Mr Hogan said.

"Governor Lowe has just done as little as he possibly has to - well below what rates are in other countries overseas ... They're not prepared to go hard on this.  They're not determined to get inflation down.

"The RBA is going to be in a situation where inflation could get away from them next year, and they'll have no choice but to jack up rates so hard, they'll put the economy into a deep, bad recession, which we didn't have to have."

Inflation is made up of two main components, goods and services; the services side posted the strongest result in more than two decades and is proving more resilient to cash rate hikes.

Services inflation is things like rent, energy, and recreation.

Mr Tulip, a former researcher at the RBA, said the cash rate hold decision was disappointing but not surprising.

"I think the labour and housing markets are seriously overheated," he said.

"Both [property] prices and rents are going up very quickly. And the pause if anything will throw a bit more fuel on the fire.

"I had thought with these big increases in mortgage rates, that would really take a lot of the heat out of the housing market, but it appears to have been more than offset by the high immigration numbers we're getting."

See Also: Rising house prices pose a consumption headache for the RBA

Labour force and immigration conundrum

Unemployment figures defied expectations, with the rate at historic lows of 3.5% in June, as a strong uptick in the employed drove the rate down.

It's thought that the surging immigration numbers filling vacant job spots is keeping the strong labour market bouyed. 

ABS data found the number of international student arrivals in May 2023 was 28.3% higher than the pre-COVID levels in May 2019.

There were also more than 480,000 long-term and permanent arrivals in the first five months of 2023, an increase of more than 66% compared to the same period in 2022.

However some of this can be attributed to resident returns after lengthy stints overseas due to Covid travel restrictions.

Mr Hogan said a bigger tell than softening inflation is the strong labour figures.

"We're in this sort of catch up phase in the post pandemic immigration plans, which is great, but it's all happening in the space of 12 months," he said.

"This is the tightest labor market in 50 years. It just seems to me, like the balance of risks is skewed at the moment."

RBA research indicated a non-inflationary rate of unemployment is 4.5% - one whole percentage point higher than it is now.

Mr Tulip said this rate is more sustainable.

"The quicker we get to there, I think the more stable unemployment and inflation will be and the closer they will be to the Reserve Bank targets," he said.

However that doesn't mean a slew of involuntary job losses, just that the level of new jobs filled cools somewhat, which is being impacted by immigration.

"We can get that unemployment rate up to about 4.5% without a lot of job losses because we've just got so many people coming into the economy," Mr Hogan said.

"At the moment, they're coming in and they're getting jobs, which of course means they're going to be spending - the real risk is the economy just doesn't slow enough because of this, and that seems to be something the Reserve Bank isn't concerned about."