Despite talking tough on inflation at a conference on Tuesday night, and after saying the board had a “low tolerance” for inflation after the October meeting, on Thursday RBA Governor Michele Bullock was not prepared to say whether the upside surprise in inflation was "material" enough to warrant a rate rise.
The jawboning is playing silly buggers with the Aussie Dollar, shooting up to USD $0.64 yesterday after surprise inflation numbers, and now below $0.63 today after the cloak and daggers:
"The print came out a little higher than we’d been forecasting at our August SoMP [statement of monetary policy] ... but it was pretty much where we thought it would come out given the information we’d come into since then, particularly the monthly CPI indicator, so we thought it was going to be about where it came out," Bullock said at a Senate Economics Legislation Committee for Supplementary Budget Estimates.
Once again the RBA is pedestal-ising themselves as the smartest guys in the room.
And who can blame them. The more vague 'one foot in both camps' commentary is due to the media beat up over former governor Lowe's commentary on 'no rate rises until 2024'.
The underlying print Bullock is referring to is the 1.2% trimmed mean rise of prices in the three months through September when the RBA had forecasted 0.9% growth.
The RBA economics team arguably wouldn't have had enough time to assess the results, but hopefully they'd have had time to digest the sandwich a la merde by the monetary policy meeting in less than two weeks' time.
Bullock seemed keen to avoid appearing hawkish and refused to answer whether an obviously material upside surprise to inflation was material compared to the RBA's old (and incorrect) forecasts, and whether it would delay the return of inflation to target, which it clearly will.…— christopher joye (@cjoye) October 25, 2023
Surprise headline figures can be explained away by petrol prices, Russia-Ukraine, and a lot of offshore stuff - which are not really affected by rate rises from Down Under.
And therein lies the dichotomy or paradox of interest rate rises.
“As I said that the persistence is in the services side, and the goods side is responding, but I think that’s all I’d say from this point," Bullock said.
Services include energy and fuel and rents/property investors, as well as doctors, dentists and hairdressers. The latter four all the feel the pain of rate rises on their bottom line, and yet:
"We're looking at some of the more persistent parts of inflation and asking ourselves 'Are there signs that those might be coming down in the future?'" Bullock pondered.
Unlikely, in the short-to-medium term anyway.
The headline figure would have been worse had it not been for energy subsidies and the like, and you can't keep subsidising bills forever.
The underlying figure removes a lot of the guff and is a telling figure - one that NAB head of market economics Tapas Strickland said is "material" enough to warrant a rate rise.
Indeed all four major banks and their economists believe there will be a rate rise next month.
Even Luci Ellis, who took over as Westpac chief economist from veteran Bill Evans, thinks so.
An RBA assistant governor until October 2023, she'd still arguably have half a pinky toe dipped-in and a good pulse for the goings-on at the central bank; there's a reason big companies love to hire ex-RBA.
"A 0.1% difference [headline rate vs Westpac forecast] might not seem like a lot, but the underlying detail was sobering," Ellis said.
CBA's Gareth Aird, who remained more steadfast than most that 4.10% would be the peak, changed his tune as well.
And back to the tough talk on inflation for Bullock (you have to wonder if all this public access is actually helping):
“The longer that inflation remains outside the target band, the more likely it is that inflation expectations might adjust to that," she said today.
One has to wonder to whom they are referring when they say "expectations" - average Aussies paying $2.10 a litre and rump steak at over $15 for two gristly portions? Banks and financial types who are calling for one more rate rise? Or is it the RBA, which itself has pushed back target inflation expectations from "late 2024" or "mid 2025" to "late 2025".
That question was enough for my late-August Freedom of Information request on the matter to get rejected by the RBA FOI team, citing "an unreasonable and fruitless diversion of the Bank’s resources".
As someone always says to me, C'est la vie qu'est-ce que c'est croissant.
For those say it was all fuel in the Q3 CPI, it was trimmed out or excluded in two key measures that both accelerated in any case pic.twitter.com/u7irN1i5AW— Alex Joiner (@IFM_Economist) October 25, 2023