We’re coming to the pointy end of the post-pandemic Great Australian Experiment in taming inflation.
In this period of aggressive and restrictive policy to fight inflation, our monetary officials have not pushed rates as high as their peers in other rich countries.
It means inflation has stayed higher here for longer than say the US, Canada or New Zealand, but we’ve been able to hold on to the post-crisis job gains and not experience the higher unemployment rates in those countries, where “disinflation” has brought on a welcome easing in the monetary squeeze.
Or soon will, as is the case in the US, with the pivot from monetary emperor Jerome Powell the other day signalling a cut in the benchmark federal funds rate when officials meet in three weeks’ time.
America’s unemployment rate hit a three-year high of 4.3 per cent last month.
“We do not seek or welcome further cooling in labour market conditions,” the Federal Reserve chairman said on Friday.
“The time has come for policy to adjust.”
But it’s still a wait-and-see approach in Australia.
The monthly consumer price index indicator rose by 3.5 per cent in the year to July, down from 3.8 per cent in June.
The Reserve Bank is more interested in underlying inflation, which removes the most volatile items in the basket, which eased to 3.8 per cent, from 4.1 per cent in June.
Annual “trimmed mean” inflation, as it is known, has been stuck at around 4 per cent since last December.
That’s too high for the RBA board, which seriously considered a rise in the cash rate at its policy meeting earlier this month.
In defiance of the occasional market charge, and unlike her counterparts in the Anglosphere, Michele Bullock has pushed off the table the likelihood of a rate cut this year.
The market consensus is for an easing early next year, perhaps in February, when the board first meets after a summer hiatus.
Don’t expect the next few months to be quiet or orderly, as politicians bicker over who is to blame for the stickiness of inflation and the rise in unemployment.
The headline inflation figures should, economists warn, be taken “with a grain of salt” because of the effect of temporary energy rebates.
As we move into spring, the governor and her board colleagues are hoping that they’ve beaten into submission their main foe without being fitted up themselves as a callous public enemy No 1.
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