Rate cuts anytime this year in Australia, are now hanging by a thread, given the latest inflation data came in hotter than expected, despite the annual rate falling thanks to base effects from months ago, and some changes in the weightings.
The upside surprise came via a smaller than expected fall in utilities, but stronger than expected increases in health, car prices and insurance. Sticky inflation has become a reality, leaving the RBA board’s decision last month to abandon its stated tightening bias looking premature. Most concerning for the RBA will be the surprising strength in trimmed mean inflation, its preferred measure of underlying price pressures, which rose 4%, also higher than forecast and well above the RBA’s 2-3% target.
The ABS reported that the Consumer Price Index (CPI) rose 1.0 per cent in the March quarter, higher than the 0.6 per cent rise in the December 2023 quarter. Annually, the CPI rose 3.6 per cent to the March 2024 quarter. While prices continued to rise for most goods and services, annual CPI inflation was down from 4.1 per cent last quarter and has fallen from the peak of 7.8 per cent in December 2022.
RBA governor Michele Bullock did warn there will be bumps on the journey back to target, and while one quarterly increase in underlying inflation does not mean disinflation is over it is an early warning sign that Australia could be going the way of the United States, where inflation is proving hard to tame. At very least this higher-than-expected result in the first three months of 2024, suggesting price pressures are proving stickier and bolstering the case for the central bank to hold interest rates at a 12-year high.
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More Inflation Shenanigans: Will The Next Rate Move Be Up, Not Down?
Rate cuts anytime this year in Australia, are now hanging by a thread, given the latest inflation data came in hotter than expected, despite the annual rate falling thanks to base effects from months ago, and some changes in the weightings.
The upside surprise came via a smaller than expected fall in utilities, but stronger than expected increases in health, car prices and insurance. Sticky inflation has become a reality, leaving the RBA board’s decision last month to abandon its stated tightening bias looking premature. Most concerning for the RBA will be the surprising strength in trimmed mean inflation, its preferred measure of underlying price pressures, which rose 4%, also higher than forecast and well above the RBA’s 2-3% target.
The ABS reported that the Consumer Price Index (CPI) rose 1.0 per cent in the March quarter, higher than the 0.6 per cent rise in the December 2023 quarter. Annually, the CPI rose 3.6 per cent to the March 2024 quarter. While prices continued to rise for most goods and services, annual CPI inflation was down from 4.1 per cent last quarter and has fallen from the peak of 7.8 per cent in December 2022.
RBA governor Michele Bullock did warn there will be bumps on the journey back to target, and while one quarterly increase in underlying inflation does not mean disinflation is over it is an early warning sign that Australia could be going the way of the United States, where inflation is proving hard to tame. At very least this higher-than-expected result in the first three months of 2024, suggesting price pressures are proving stickier and bolstering the case for the central bank to hold interest rates at a 12-year high.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
On Thursday Australia’s jobless rate rose to 3.8 per cent in March, which was broadly in line with the market’s expectations, and ahead of crucial March quarter inflation data due next Wednesday. The economy added 27,900 full-time roles and lost 34,500 part-time jobs in the month.
This very slight rise in the unemployment figure to 3.8 per cent last month showed February’s unexpected drop to 3.7 per cent was not an aberration after all. It’s further evidence of the continued strong state of the Australian labour market.
So, forget rate cuts for now, as this can only make it harder for the Reserve Bank to consider any start to rate cuts in the foreseeable future. Reserve Bank governor Michele Bullock’s mantra is that the path of interest rates will depend on the data. And this is one more data point indicating the resilience of the economy. Actually, despite record immigration, the employment-to-population ratio fell marginally in the month but is still at close to the historically high levels of last year.
This continues what I think is a really wonky series on employment, as I have discussed before. As in many economies, thanks to sample issues, and definitional issues they are hard to read. Indeed, Australia’s labor market report is a volatile series and both economists and policymakers tend to look through month-to-month fluctuations. So, Thursday’s data was widely anticipated following holiday season-affected readings since December. The ABS noted that employment flows have now returned “to a more usual pattern” after recent instability. The incoming and outgoing samples this time around were certainly a little less volatile. But I still take the results with a truck load of salt!
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More Data Pushing Rate Cuts Out, as Labour Markets Hold Up (Again)!
On Thursday Australia’s jobless rate rose to 3.8 per cent in March, which was broadly in line with the market’s expectations, and ahead of crucial March quarter inflation data due next Wednesday. The economy added 27,900 full-time roles and lost 34,500 part-time jobs in the month.
This very slight rise in the unemployment figure to 3.8 per cent last month showed February’s unexpected drop to 3.7 per cent was not an aberration after all. It’s further evidence of the continued strong state of the Australian labour market.
So, forget rate cuts for now, as this can only make it harder for the Reserve Bank to consider any start to rate cuts in the foreseeable future. Reserve Bank governor Michele Bullock’s mantra is that the path of interest rates will depend on the data. And this is one more data point indicating the resilience of the economy. Actually, despite record immigration, the employment-to-population ratio fell marginally in the month but is still at close to the historically high levels of last year.
This continues what I think is a really wonky series on employment, as I have discussed before. As in many economies, thanks to sample issues, and definitional issues they are hard to read. Indeed, Australia’s labor market report is a volatile series and both economists and policymakers tend to look through month-to-month fluctuations. So, Thursday’s data was widely anticipated following holiday season-affected readings since December. The ABS noted that employment flows have now returned “to a more usual pattern” after recent instability. The incoming and outgoing samples this time around were certainly a little less volatile. But I still take the results with a truck load of salt!
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
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Our latest Friday Afternoon chat with journalist Tarric Brooker as we look at the current data, which questions potential rate cuts, and housing trends, as demand stays strong while supply is limited.
Below the water line we examine some of the underlying assumptions behind the numbers, and how politics have changed.
Worse, the structural issues can be traced back to a series of political decisions, which were policy errors – when will they come clean?
Tarric’s charts are here: https://avidcom.substack.com/p/dfa-chart-pack-12th-april-2024 if you want to follow along.
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Wherever you look, the news is not good for those wishing to see housing affordability relief.
First demand for rentals continues to be powered by the overseas influx. New data from the Department of Home Affairs shows that at the end of February, the number of international students in Australia hit a record high of 713,144, whereas the number of temporary migrants in Australia hit a record high of 2.8 million (nearly 2.4 million excluding visitors).
Or put it another way, the number of student visa holders in Australia is running around 80,000 above the pre-pandemic peak, while the number of temporary visa holders excluding visitors is around 400,000 above the pre-pandemic peak.
Then we can turn to the question of new housing supply. I have covered before the fact that the country is littered with half-completed construction projects, many of which are competing for labour and resources with the large number of government and commercial projects also currently running. This crowded out home builders as the major projects sucked in labour and drove up its cost.
But we also continue to see more building firms going under. In the light of this, perhaps we should not be surprised that the total number of dwellings approved fell 1.9 per cent in February (seasonally adjusted), after a 2.5 per cent fall in January, according to data released on Thursday by the Australian Bureau of Statistics (ABS).
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The ABS released more data on Thursday from which we can deduce that despite some headline growth in spending thanks to the Taylor Swift events, underlying growth in retail turnover was up only 0.1 per cent in trend terms so after a period of higher volatility from November through to January, underlying spending has stagnated.
This is despite a growth in paper wealth – up which was 7.8 per cent over the past year, thanks to a large boost from rising house prices and domestic and overseas share markets. But we also saw a rise in household borrowing driven by continuing demand for housing amid strong population growth and a seasonal boost from spring housing market sales also drove household borrowing in the December quarter.
Under the hood, we see continued pressure on many households whose wages are not keeping up with living costs – inflation as I discussed yesterday remains too high, while the asset distribution across households is further distorting between the haves and have nots. Many consumers are clearly struggling under the weight of soft income growth, mortgage repayments, rents, income taxes, and overall cost-of-living pressures.
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Pressure: Retail Spending Stagnates, Despite “Growth” In Wealth!
The ABS released more data on Thursday from which we can deduce that despite some headline growth in spending thanks to the Taylor Swift events, underlying growth in retail turnover was up only 0.1 per cent in trend terms so after a period of higher volatility from November through to January, underlying spending has stagnated.
This is despite a growth in paper wealth – up which was 7.8 per cent over the past year, thanks to a large boost from rising house prices and domestic and overseas share markets. But we also saw a rise in household borrowing driven by continuing demand for housing amid strong population growth and a seasonal boost from spring housing market sales also drove household borrowing in the December quarter.
Under the hood, we see continued pressure on many households whose wages are not keeping up with living costs – inflation as I discussed yesterday remains too high, while the asset distribution across households is further distorting between the haves and have nots. Many consumers are clearly struggling under the weight of soft income growth, mortgage repayments, rents, income taxes, and overall cost-of-living pressures.
http://www.martinnorth.com/
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We got the latest monthly data on inflation on Wednesday, and it came in a bit below market expectations, standing at 3.4% unchanged in February and has been 3.4 per cent for three consecutive months according to the ABS. Monthly data does not cover all the categories, so results are always a bit uncertain.
But just to be clear, prices are still rising faster than the RBA’s target, and while the data is volatile, there is clearly more to do to get to band. Also, I believe real inflation as experienced by many households are significantly higher than the official numbers. When excluding volatile items, the annual rise eased to 3.9% from January’s 4.1%, still well above the RBA’s 2-3% target band. Annual inflation excluding volatile items has continued to slow over the last 14 months from a high of 7.2 per cent in December 2022.
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Australian employment soared in February and the jobless rate declined, highlighting the ongoing resilience of the nation’s labor market to restrictive monetary policy according to the latest Numberwang from the ABS. As a result, the currency rose as much as 0.6% after the data while yields on the policy-sensitive three-year government bond climbed to 3.7%. Traders now see a 60% chance of a rate cut in August, down from 80% before the data.
The strong jobs data contrasts with indicators ranging from business and consumer surveys to job vacancies and retail sales that suggest the economy is slowing.
The RBA on Tuesday left all options on the table with regards to rate moves, awaiting more data to show what’s going on. I am not sure this will help much!
The seasonally adjusted unemployment rate fell by 0.4 percentage points to 3.7 per cent in February, according to data released today by the Australian Bureau of Statistics (ABS).
And its worth noting that the current ABS labour market data is not matching the weak growth picture in the National Accounts or other second tier labour market data like jobs ads and applicants per job from Seek.
We continue to need to create around 35,000 jobs every month to stop unemployment rising, and of course the latest migration data which also came out today showed a record high net inward flow, of over 600,000.
Perhaps we will see a reversal in the data in March, because frankly the ABS Numberwanging whilst quite majestic, is simply deceptive. We need a much better jobs data compass.
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