McCrann: Jobs, inflation data key to next interest rate move

Michele Bullock is keeping her cards close to her chest ahead of key inflation data which will decide the RBA’s next move.

RBA governor Michele Bullock addresses the media on Tuesday after the RBA board decision to leave interest rates on hold. Picture: NCA NewsWire / Nikki Short

Interest rates. It’s now on to the Reserve Bank’s meeting in early August.

Right now, the next meeting, in mid-June, is shaping up to be a repeat of this one.

The official rate left unchanged; a neutral stance throwing forward from the meeting – with governor Michele Bullock, and her board, again not “ruling anything in or out”.

But a neutral stance with a slight, like Tuesday’s, hiking tilt.

At her press conference Bullock explicitly disclosed the board HAD discussed a rate hike. She – quite deliberately – did not add, that it had also discussed a rate cut.

That said, that implicit, slight, hiking bias noted, if there is going to be a surprise at the next meeting in mid-June, it could only be a cut.

If the economy had shown itself to have really hit the wall, with seriously rocketing job losses (we get two monthly sets of ABS jobs numbers between now and then) and the jobless rate heading for 5 per cent.

If that was happening, we could pretty safely assume that the last thing businesses would be thinking were price hikes.

Importantly, the key inflation data – the comprehensive June quarter data – comes just a week before the RBA’s August meeting.

If that data surprised unpleasantly on the high side, the RBA would arguably have no basis for not hiking. Even with rising jobless numbers.

Now of course, inflation could equally surprise on the low side.

A low quarterly inflation number AND further serious weakening in jobs and the economy more broadly, could very well trigger a “surprise” rate cut at the August meeting.

Although by then it should no longer be a “surprise”; either way.

I’m not predicting a definite move, either way, in August. The numbers could well extend the current neutral stance.

That’s arguably what Bullock and her board would prefer. Inflation gently, but steadily falling on course, and no unpleasant jobless surge.

But it’s to stress why the RBA won’t hike at the mid-June meeting. It only gets the real data on the inflation it is really worried about – services inflation – in the quarterly numbers ahead of August.

Some important further points.

Without knowing precisely and in full what’s in next week’s federal budget – and taking Treasurer Jim Chalmers at his word; his private words to Bullock - she made it clear the budget won’t impact the RBA’s rate decisions.

In all the frenzy on the inflation detail, it tends to get lost that while yes, it’s proving sticky above the 2-3 per cent target; it’s sticky only in the high-3s.

The idea that the RBA’s rate has to go up, because at 4.35 per cent it is way lower than the Fed’s 5.25-5.5 per cent (and our neighbour New Zealand’s 5.5 per cent), has no foundation.

Home loans in Australia are, almost globally uniquely, variable-rate – or being switched (the 2020 fixed-rate generation) to variable; so the 4.35 per cent has hit faster and punitively on households

Further, importantly, Bullock continues to project calm re-assurance that she knows what she is doing; and is confidently honest and transparent in telling us.