Blockbuster jobs numbers and revised forecasts for earlier Reserve Bank of Australia rate hikes:
- Australian May Employment Change +115.2K (expected +30K) & Unemployment Rate: 5.1% (expected 5.5%)
- Australia's 'stunning' jobs report, wage pressure 'will only grow'
- The labour market is tightening faster than we expected, potentially pressuring our call for a rate hike in H2 2023.
- Westpac: We expect the RBA will begin it's tightening cycle in Q1 of 2023
- More on Westpac forecasting an RBA cash rate hike in early 2023
Its all been happening since Thursday last week!
But, HSBC are not so sure on calls for an early hike, not disputing the strong jobs market but concerned about the other half of the RBA mandate, inflation:
Why is Phil Lowe still so dovish?
- The answer is almost certainly that Aussie inflation starts this upswing around record lows and that inflation has been well below target for all of the Governor's term so far.
- There is clear risk that low inflation has become embedded
The transmission the RBA is looking for is :
- Stronger jobs market (which we are seeing in the numbers, see links above)
- Leading to wage growth (which we are not seeing, yet ... but check out the second link for an opinion that this is on the way)
- Leading to inflation towards the RBA target (which is 2 to 3% for core inflation)
Here is the latest official inflation data:
- 'Core' (trimmed mean) 1.1% y/y .... this is the lowest reading ever - my chart goes back to the early 1980s)
The latest unofficial data (the monthly private survey data):
That private survey is pointing to higher core inflation. I'm not sure how HSBC are viewing this.
Note that the Reserve Bank of Australia have been saying, over and over, that they do not expect their twin targets (full employment and on-target inflation) to be met prior to 2024. Note also that the RBA have said they are not looking at their inflation forecasts when making policy decisions now, but the actual rate of inflation shown in the data. So, I guess if the core rate rises above 2% AND the RBA sticks to their new policy of assessing actual inflation, not their projections (which have been terribly wrong for a decade at least), then an earlier rate hike is on the way.
Note also that the RBA is viewing inflation as temporary, like many central banks are. I am not sure how the RBA would reconcile their view that inflation is temporary (which is a forecast, or projection, yeah?) if core rises above 2% with what they've told us they will be basing policy on - not forecasts for inflation, but on actual data. If they view an actual number as invalid then they are backtracking on their promise to have regard to data, not projections. Of course, its not unusual for a CB to flip like this ...