Reserve Bank of Australia Statement on Monetary Policy for August 2022.
Headlines via Reuters.
Bolding Italics is mine.:
- Ready to do what is necessary to bring inflation back to 2-3% band
- Seeking to restrain inflation while keeping economy on an even keel, this is a narrow path
- Board expects to take further steps to normalise policy, but not on a pre-set path
- Rate rises necessary to create more sustainable balance between demand and supply
- Risk that high inflation gets built into wage and price setting behaviour
- Inflation broad based but medium, long-term inflation expectations remain anchored
- Rising cost of living, higher rates and falling house prices to weigh on economy
- RBA downgrades outlook for economic growth, revises inflation forecasts sharply higher
- Forecasts based on analyst, market pricing assume rates reach 3% by end 2022, decline a little by end of 2024
- CPI inflation seen at 7.75% end 2022, 4.25% end 2023 and 3% end 2024
- Trimmed mean inflation seen at 6% end 2022, 3.75% end 2023, 3% end 2024
- GDP growth seen at 3.25% end 2022, 1.75% end of 2023, 2024
- Unemployment seen at 3.25% end 2022, 3.5% end 2023, 4% end 2024
- Wage price index seen at 3.0% end 2022, 3.6% end 2023, 3.9% end 2024
- Around 60% of firms in liaison program expect wages to be high over year ahead
- Many employers report they intend to increase headcount further but finding it hard to get workers
- Risks to the global outlook are skewed to the downside given synchronised policy tightening
Those bullet points seem incongruous. I say incongruous because to say insane would perhaps be rude.
Those forecasts for inflation are very high indeed:
- headline to 7.75%
- core to 3.75% at the end of next year. That's just about 18 months away. That would be above the top of the band until then?
And yet the forecasts are based on a cash rate of 3%.
- its currently just over 1.8%, why the delay in getting there? And why is 3% assumed when headline inflation will be nearly 8%, and core nearly 4%?
And as to that first bullet point: Ready to do what is necessary to bring inflation back to 2-3% band. No. You are not. The RBA is in a tough place. The risk is slowing the economy dramatically with rate rises. But if getting inflation under 3% is a Bank mandate, and it is, then why the delay in rate rises. Why is the Bank accepting above target CPI right through for the next 18 or so months (at least).
And as for the market, you can wipe that smirk off your face. On Tuesday the market perceived the RBA would be dialling back the pace of rate hikes. On the basis of this Statement why on earth would they do this?
Full text is here:
more to come