The RBA just left Australia’s cash rate at 1.5%, making our record without change, 28 months. Close followers of RBA musings expect the next move to be up. There will be a wait though, because:
- Australia’s inflation, especially “core inflation” is very weak. Core inflation excludes volatile things like food, energy, and fuel; focusing just on general price increases. The RBA’s role is to keep it between 2-3% p.a. but it’s currently around 1.6%
- the trade dispute between the USA and China is likely to slow global growth
- a rate rise would hit consumer spending — 60% of GDP — very hard since our economy is saddled with a large amount of debt
- some banks have already started out-of-cycle rate rises, due to growing borrowing costs.
Stronger wages growth is a prerequisite for an RBA rate rise, and the fortunes of Australian workers seem to be turning around. Slowly. The latest ABS data puts annual wage growth at its highest in three years. And; economic growth has also improved – up 3.4% in the year to 30 June. A big surprise is Australia’s current jobs boom and the unemployment rate—steady at a six-and-a-half year low of 5%. Reducing unemployment is a ‘lagging indicator’, signalling underlying strength and an economy on the up.
Booming mineral exports are super-charging parts of the economy and a low AUD makes our widgets very competitive globally. All the while our exporters are filling government coffers with an unexpected tax windfall.
So, while the cash rate is probably headed up rather than down, there will be little movement — if any — in 2019.