RBA – Digital Finance Analytics (DFA) Blog

The Australian Economy; Its Messy And Complicated!

Can the Australian economy be weak, and strong at the same time? Or which is it? This is an important question because the answer will determine the future policy direction of interest rates, and the well-being of ordinary Australians. So I am going to do a deep dive on this in the light of the latest employment and wage rise data from the ABS.

While The RBA has made inroads into getting inflation under control, at 3.5 per cent, underlying inflation still remains above the central bank’s 2 per cent to 3 per cent target band. And even though the jobs market has softened, it is still far stronger than almost any time since the 1970s as data out today shows.

Yet Consumers have cut back sharply as they try to cope with 13 interest rate rises by the RBA and this decline in spending has caused economic growth to grind to a halt. On an annual basis, the economy grew by just 1 per cent in the year to June, down from an average of 2.7 per cent over the past 20 years. Excluding the pandemic, that marks the slowest rate of growth since the 1990s recession. And household financial stress based on our analysis is at peak as we discussed in my live show this week.

So we have an economy driven into overdrive by high migration and big government spending, forcing interest rates to stay higher for longer, yet with a low unemployment rate and people working till they drop. None of this helps to improve productivity the share of the economic cake continues to shrink on an individual basis. And those in the rental sector or with a large mortgage are under the pump.

My point is, bad policy over a couple of decades have got us to this point, but unless we radically change direction, this Messy And Complicated journey will continue to the detriment of many ordinary Australians and businesses. There is no Goldilocks zone here.

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Digital Finance Analytics (DFA) Blog

The Australian Economy; Its Messy And Complicated!

00:00 / 00:22:51

Prepare For A Higher Rate Plateau!

One of the themes which comes through in our household surveys is that many people are under financial pressure, but are holding out for interest rate cuts in the short term.

But America’s election outcome continues to reverberate across the globe.

Bond markets continue to push higher with the US 2 and 10 year moving up, a trend reflected on the Australian market too. With the 10 year up to 4.7% compared with 3.8% in the middle of September. The ASX 30 days cash rate futures is still trending down, but more slowly than recently.

Financial markets and economists have been consistently pushing back the timing of the first rate cut in Australia since 2022 because inflation has proved far more difficult to tame and the labour market has remained strong. Traders are now fully priced for a move in September next year.

But some reckon there is a much higher chance of no rate cut in 2025 that the market is pricing in.

The US dollar index, which measures the greenback against a basket of six currencies, climbed to a six-month high on Wednesday. The AUD was down to 65.25 cents against the USD.

A strong greenback is likely to stoke inflation in Australia because of higher prices of imported goods denominated in US dollars such as oil, complicating the RBA’s job to bring inflation down so that it can start lowering the cash rate.

While Trump’s policies will become more of a focus next year, for now, the RBA’s focal point is the Australian economy, where higher for longer is going to play out.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Prepare For A Higher Rate Plateau!

00:00 / 00:08:59

Prepare For A Higher Rate Plateau!

One of the themes which comes through in our household surveys is that many people are under financial pressure, but are holding out for interest rate cuts in the short term.

But America’s election outcome continues to reverberate across the globe.

But some reckon there is a much higher chance of no rate cut in 2025 that the market is pricing in.

The US dollar index, which measures the greenback against a basket of six currencies, climbed to a six-month high on Wednesday. The AUD was down to 65.25 cents against the USD.

While Trump’s policies will become more of a focus next year, for now, the RBA’s focal point is the Australian economy, where higher for longer is going to play out.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Never Trust The Government?

In our surveys we include a question on whether households trust the federal and state governments to do the right thing for them. And the answer is a resounding, no. The question of whether we do trust those elected officials who theoretically at least should be looking after our interests, seems to highlight that in many countries, from Australia, UK, Canada, New Zealand and America, Government is on the nose.

Perhaps this is one reason why there are attempts in train to close down free speech, as illustrated by the misinformation and disinformation bill currently on the books in the Australian parliament. See my earlier post about this MAD bill and why it must be resisted.

In our surveys we find many households struggling with rising costs and flat real incomes, an ability to get ahead, or find a place to live, and ever more pressure on family relationships as a result. In other words, many blame bad government policy for their own predicaments. They are right.

The recently released report on Government action during the COVID period cuts to the heart of the question of trust as the three-person inquiry panel slammed the approaches towards such issues as lockdowns, vaccine mandates, and school and border closures, saying they lacked transparency and compassion, and were often not evidence-based. Now let me say straight away the scope of this inquiry was deliberately hobbled to avoid key questions around vaccines, and other issues, which is in itself shameful, but even so, the COVID-19 inquiry found that heavy-handed, inconsistent and insensitive pandemic restrictions meant people were unlikely to accept such measures again.

Economic modelling presented to the inquiry found that inflation could have peaked at about 6 per cent, instead of 8 per cent in December 2022, if the federal government’s more than $300 billion of pandemic spending and Reserve Bank of Australia’s near-zero interest rate policies were less stimulatory.

So all up, we can draw three conclusions.

Too much tax payer money was thrown at the problem in a poorly targeted inflation stoking manner. This is why inflation loomed to the fore in the past few years.

Too much was through directly and indirectly at the housing market, stoking home prices and rents, and exacerbated the distortions which were already in the market. No wonder prices have accelerated relative to incomes. No wonder too the construction sector is all but wrecked, with many firms subsequently failing while construction costs rise.

And there is still a resistance to admit errors both from Government and the RBA. Those in positions of responsibility may have done their best, but it was simply not good enough.

We expect, and rightly demand more from our elected leaders. They collectively failed us and the fallout continues to this day.

The right critical observation is that trust will be hard to recover. Given recent behaviour, it may never be healed, which spells risks to democracy itself. Queue the MAD bill.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Never Trust The Government?

00:00 / 00:16:51

Big Consequences As The Inflation Higher For Longer Drama Plays Out As Expected…

Well now we know. While the annual Australian headline inflation rate slipped to 2.8%, which is just within the RBA’s target 2-3% band, from 3.8% in the June quarter and is the lowest since March 2021, underlying inflation remains well above the RBA’s 2 per cent to 3 per cent target band at 3.5 per cent in line with forecasts. Annual Goods inflation was 1.4 per cent, down from 3.2 per cent in the June quarter.

The trimmed mean measure of consumer prices, which smooths out volatile items, rose 0.8% in the three months through September, matching estimates, but services inflation rose to 4.6% from 4.5% last time around. This is the prices of all those things you can’t drop on your foot. The biggest culprits were rent, insurance, education, and medical, dental and hospital services costs. Education prices were up 6.4 per cent. The cost of taking pets to the vet rose by 5.8 per cent in the year to September, while the price of a haircut went up by 6.3 per cent and the cost of a visit to the mechanic jumped by 4.3 per cent. The common theme. Wages growth.

While a first rate cut in February remains possible, with the consumer starting to feel more upbeat, wealth booming, strong population growth keeping housing costs sticky and governments still spending up a storm, the RBA doesn’t appear to have a lot of room to move.

Next year’s RBA board meetings are not until mid-February, the end of March and late May – a mile away for anyone struggling with debt.

Higher for longer remains my call as financial pressures on many households continue to build. Something will break. No Christmas rate cut present coming from Santa this year.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Big Consequences As The Inflation Higher For Longer Drama Plays Out As Expected…

00:00 / 00:13:37

Inflation Fears Still Haunt (Especially Australia)…

The Washington-based IMF just published In its biannual world economic outlook, which said that central banks had scored a major achievement to return inflation to the pre-pandemic average without inflicting a global recession.

They go one to say that economic developments over the past four years have had a lot to do with how individual countries have deployed fiscal and monetary policies since the pandemic.

Australia’s choice to hold rates lower, whilst lifting government debt (across states and federally) with most new jobs created in the public sector, thus crimping productivity. This plus high migration has kept inflation well above band, and with little prospect of cuts any time soon, but so far have avoided a technical recession, although many households still are feeling the pinch.

New Zealand lifted rate faster and higher, and hit a recession, but is now cutting, has cut migration, and did not pump-up jobs in the public sector as Australia did. It will be interesting to see which strategy provides the better long-term outcomes.

But for now, the fear of entrenched inflation and higher interest rates for longer suggests that the inflation battle in Australia has yet to be won. And with an election due by May next year, this could well spell trouble for the current Government, though I am not sure the other mob are any better!

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

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Digital Finance Analytics (DFA) Blog

Inflation Fears Still Haunt (Especially Australia)…

00:00 / 00:15:55

Inflation Fears Still Haunt (Especially Australia)…

They go one to say that economic developments over the past four years have had a lot to do with how individual countries have deployed fiscal and monetary policies since the pandemic.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Find more at https://digitalfinanceanalytics.com/blog/ where you can subscribe to our research alerts

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Is The RBA About To Pivot On Interest Rates?

The RBA after the September monetary policy meeting suggested that the official cash rate would remain on hold for the foreseeable future, noting that the underlying inflation rate of 3.9% over the year to the June quarter “is still some way above the midpoint of the 2%–3% target range”.

The RBA has started to talk about scenarios, and this was reemphasised in the minutes of the meeting which was released Tuesday. As well as their current stance, the Minutes considered two scenarios that would justify financial conditions needing to be less restrictive than currently:

(i) if the economy proved to be significantly weaker than expected and this placed more downward pressure on underlying inflation than expected (due to higher household savings and/or if the labour market weakened more sharply than forecast); or

(ii) if inflation proved less persistent than assumed, even without weaker-than-expected activity.

So that begs the question, is the RBA about to pivot?

Well, CBA’s Gareth Aird who has been consistently forecasting rate cuts sooner for months now, than most of the other bank economists (I wonder why) suggests that We believe the introduction of these two scenarios that would justify less restrictive financial conditions provide an insight into the Board’s reaction function that could see the RBA commence an easing cycle this calendar year (in line with our base case).

Deputy Governor Andrew Hauser speaking at an event hosted by the Walkley Foundation said that despite the September minutes removing the line that “it was unlikely that the cash rate target would be reduced in the short term” the Bank had not change its tune arguing that its meeting minutes were not a particularly dovish message. The minutes also showed that board members discussed scenarios whereby interest rates risked remaining higher for longer or could be tightened further, conferring further pain on borrowers. It all boils back to the demand supply problem in the economy, where if demand remained stronger (perhaps thanks to tax cuts or government handouts – that’s my side-note) or stronger than expected performance of the jobs market. In this case the cash rate might need to be noticeably higher than the market path underpinning the August forecasts.

So bottom line, the RBA minutes does not change the game on quick rate cuts, and we must continue to wrestle with higher for longer.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Is The RBA About To Pivot On Interest Rates?

00:00 / 00:09:06

Is The RBA About To Pivot On Interest Rates?

(ii) if inflation proved less persistent than assumed, even without weaker-than-expected activity.

So that begs the question, is the RBA about to pivot?

Deputy Governor Andrew Hauser speaking at an event hosted by the Walkley Foundation said that despite the September minutes removing the line that “it was unlikely that the cash rate target would be reduced in the short term” the Bank had not change its tune arguing that its meeting minutes were not a particularly dovish message. The minutes also showed that board members discussed scenarios whereby interest rates risked remaining higher for longer or could be tightened further, conferring further pain on borrowers. It all boils back to the demand supply problem in the economy, where if demand remained stronger (perhaps thanks to tax cuts or government handouts – that’s my sidenote) or stronger than expected performance of the jobs market. In this case the cash rate might need to be noticeably higher than the market path underpinning the August forecasts.

So bottom line, the RBA minutes does not change the game on quick rate cuts, and we must continue to wrestle with higher for longer.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Who’s Telling Porkies Now?

The unelected, neo-liberal biased International Monetary Fund, one among many technocrat groups which try to impose top-down advice based on their underlying philosophy, recently released their latest advice relating to Australia. Their concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country.

This time the IMF gave a mixed assessment of recent government budgets and whether Treasurer Jim Chalmers and his state counterparts were helping the RBA to tame Australia’s worst inflation outbreak in decades, because they warned the federal and state governments that any further unexpected rise in spending will force the Reserve Bank to keep interest rates high, and that future cost-of-living relief needs to be targeted.

We are certainly seeing some evidence of that in our household surveys, the findings of which I will discuss on Tuesday on my live show at 8pm Sydney time. Some are benefiting from the payments, despite having strong cash flow and savings, whereas for those under financial pressure, the rebates are hardly touching the sides, creating a more unequal story financially speaking. Indeed, One in four mortgage holders have had to skip paying for another expense to prioritise keeping a roof over their head, according to Finder.

This is an important point, because its Dr Chalmers and Finance Minister Katy Gallagher have hinted that they plan to announce another round of household subsidies before the next federal election, as Labor tries to placate voter anger over high inflation.

They also called for a complete overhaul of Australia’s tax system and suggested the government phase out $52 billion of superannuation tax concessions and the $19 billion capital gains tax discount to fund a reduction in personal income and company tax rates.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/