No rate rise Tuesday but still a chance in 2024

New RBA governor Michele Bullock won’t raise rates on Tuesday but surging wages – egged on by the off-the-leash IR minister Tony Bourke – could actually force hikes in 2024.

Michele Bullock presides over her first meeting as Reserve Bank governor next Tuesday. She will lead her board to leave the official interest rate unchanged.

Wednesday’s slight kick-up in the - partial – inflation data to 5.2 per cent for the August year won’t alter that decision, which was essentially ‘locked-in’, under what I described as a ‘unity ticket’ with now-departed governor Philip Lowe.

The last full quarterly inflation data – at the end of July – showed 6 per cent inflation for the June year; far more potently, it was just 0.8 per cent for the actual June quarter, or just 3.2 per cent annualised.

That guaranteed an unchanged rate decision at the immediately following August RBA meeting.

It also all-but guaranteed no change at both the September meeting - Lowe’s last – and the October meeting next Tuesday, Bullock’s first.

This was so, even though at both the August and September meetings, the board formally considered two options: no change and a 25-point hike.

Giving the board two options, albeit still with a recommendation from himself, was a new practice that Lowe had adopted earlier this year; over the long-established one of just one option for the board to vote ‘yea’ or ‘nay’.

Bullock is likely to continue the practice, which was never ‘announced’ by Lowe, only revealed in the formal minutes two weeks after each meeting.

Now, Bullock was hardly likely to kick-off her seven years with a rate hike at her first meeting as governor.

New RBA Governor Michele Bullock at the RBA offices in Martin Place. Picture: John Feder/The Australian

Unless it was absolutely essential, unavoidable, and indeed urgent.

The kick-up in the partial monthly data did not go close to meeting that criteria.

It always made sense to see the full inflation data over the whole September quarter, released in late-October, ahead of the iconic, and often potent (ask former PM John Howard) Melbourne Cup Day meeting.

Again though, it will take a big jump – after the August meeting, I nominated at least a 1.5 per cent quarterly inflation number – to even possibly trigger a Cup Day hike. That would also have been true under Lowe.

Assuming no such inflation surge and no Cup Day hike, that will take rates unchanged through December and to the February meeting.

As I warned two weeks ago, the lazy assumption that rates staying unchanged would then lead pretty quickly to rate cuts – both here and in America – was highly premature and dangerous.

There’s now a growing realisation, among both the respective economentariats and market players on both sides of the Pacific – that rates might well stay high through much if not all of 2024. Here and in the US.

Hence the slide on Wall St, and the subsequent slide downunder.

But even worse, as I warned even earlier in mid-August, surging wages – egged on by the off-the-leash IR minister Tony Bourke – could actually force rate hikes in 2024.

Bullock will hike if necessary, like her three predecessors. To fight inflation and not to force the jobless rate higher, as her mindless verballing would have it.

Again, the economentariat is now catching up to that bleak prospect.

And again, possibly here and in the US.