McCrann: Inflation still too high to contemplate rate cut

The latest inflation data has left the RBA with only one real option at its next meeting. It won’t seriously consider a hike, but nor are cuts on the horizon.

RBA governor Michele Bullock. Picture: NCA NewsWire / Martin Ollman

There was no joy in the latest monthly – January – inflation numbers on either the inflation or the interest rate fronts.

Absent some catastrophic left-field disaster, the Reserve Bank will leave its official interest rate unchanged at its next meeting, next Tuesday fortnight – the first of its meetings away from the first-Tuesday-in-every-month format.

It will do so, even though the board will formally discuss and consider two policy options: to pause or to hike (by 25 points).

To stress, it will formally, but not seriously, contemplate a possible hike.

As I explained about the February meeting – and indeed all the others through 2023 – the board was offered two options for discussion and decision. To pause or to hike.

But members went to the meeting, and they will again in two weeks, with a clear recommendation from governor Michele Bullock, to pause.

The ‘two-choices’ is aimed at getting a rigorous analytical and decision-making process; to build to a consensus around the governor’s recommendation.

At some point this year, the ‘two choices’ will shift to pause-cut. But not in two weeks.

The detail in the inflation data – and, importantly, what was not in the data - certainly eliminated any chance of that.

The best that could be said about the inflation numbers was that they did demand a rate hike.

Now, it tends to be forgotten, especially among commentators, that the inflation numbers are not just a pointer to what the RBA might do with interest rates.

Sometimes, actually, always, they are also just about, well, inflation – price rises.

Soberly, we are still getting them; and still getting them at too high a level. That’s, too high for the RBA to contemplate one, far less, multiple, rate cuts.

But even importantly, too high for 26 million Australians – every single one of them.

Inflation is still running at a level which threatens to turn every one of your dollars into 50c – in buying power terms – over the next dozen to 15 years.

Yes, inflation - as calculated and reported under this measure, by the ABS, over the 12 months - held unchanged at 3.4 per cent; tantalisingly close to the top of the RBA’s 2-3 per cent target range.

But as the ABS explained, take out the volatile items, and inflation was virtually unchanged at a significantly higher 4.1 per cent.

This tallies exactly with the 4.1 per cent inflation rise over calendar 2023 in the more comprehensive and analytically superior ABS quarterly data.

This is not just too far above even the top-end of the RBA target range, it leads to pressure for wage rises of 4-5 per cent - if not indeed the 6 per cent won by the CFMEU and wharfies.

And as Bullock has repeatedly and firmly stressed, those wages rises are incompatible with sub-3 per cent inflation if we don’t – and we are not – getting big productivity gains.

Two bottom lines.

Inflation continues to eat insidiously away at your income and your savings. And, via bracket creep, at your after-tax spending power.

The RBA won’t hike again in two weeks, but it certainly won’t cut.