In the past 48 hours we had a no change interest rate decision from the RBA and monthly headline inflation which dropped within the target 2-3% target range from the partial services heavy monthly data release, thanks to temporary Government handout to ease costs of living so window dressing the results, but which the RBA says they will look through in the policy deliberations.
The RBA, is facing increasing pressures at home to lower borrowing costs, with politicians sparring over the outlook on interest rates ahead of an election due by May 2025. But Bullock said the RBA won’t be dragged into politics as it is splitting with a global easing cycle as it waits for inflation to abate.
So today I want to look at the RBA statement, then delve into the detail from the inflation numbers and finally try to figure out what this all means.
The RBA last month warned the rapid rise in government outlays was one of the factors prolonging high inflation. The bank’s statement was a political headache for Dr Chalmers, and Ms Bullock subsequently softened the central bank’s stance, saying government spending was not the “main game” for inflation.
At the federal level, government spending on childcare, aged care and disability care surged by more than 20 per cent over the past year, while spending on public servant wages jumped 14.5 per cent. Spending on the NDIS has been a major driver of the explosion in government spending. The scheme, which is forecast to cost $49 billion this financial year, is growing at about 20 per cent per year and is on track to cost more than the age pension within a decade.
Since the 2019 calendar year, the underlying cost base in the construction sector has grown by a whopping 36 per cent, compared to around 21 per cent in the non-mining market sector as a whole.
As the public sector expands, productivity growth would temporarily slow as more resources poured into sectors such as healthcare and education, where productivity is about one-third lower than the private sector.
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