By Shane Wright and Millie Muroi
The Reserve Bank’s deputy governor has pushed back at critics who have accused the institution of sitting on its hands as inflation remains high, warning that the degree of uncertainty over the economy made any change in interest rate levels challenging.
Amid growing political tensions over cost-of-living pressures, Andrew Hauser used an address to the Economic Society of Australia’s Queensland branch in Brisbane to describe those who claimed to be sure of the way forward as “false prophets”.
Reserve Bank deputy governor Andrew Hauser has warned against “false prophets” and their claims of economic certainty.
“When the stakes are so high, claiming supreme confidence or certainty over what is an intrinsically uncertain and ambiguous outlook is a dangerous game,” he said.
“At best, it needlessly weaponises an important but difficult process of discovery. At worst, it risks driving poor analysis and decision-making that could harm the welfare of all Australians.”
The RBA held official interest rates steady at 4.35 per cent last week. Financial markets still expect the bank to cut rates by Christmas, but governor Michele Bullock has warned it is difficult to see such a move for at least six months.
Some economic commentators have warned that the bank will continue to struggle to meet its 2-3 per cent inflation target unless it lifts the cash rate.
But Hauser said while a vibrant public debate about the economy was healthy, there seemed to be a strong degree of certainty among many commentators that was at odds with how the economy was performing.
“It is right to want to be confident that the central bank will bring inflation back to target and maintain full employment: that is the RBA’s mandate and we should be held to account for it,” he said.
“But the policy strategy required to deliver that outcome, and the economic judgments that inform it, simply cannot be stated with anything like the same degree of certainty. Those pretending otherwise are false prophets.”
Inflation in the June quarter reached 3.8 per cent, in line with the Reserve Bank’s forecasts.
Hauser noted that while the bank’s forecast had been correct, inflation in previous quarters had been above expectations.
He said while there was a range of possible explanations, it appeared supply across the economy might have been a little weaker than the bank had expected.
Supply issues, such as those at the end of the COVID-19 pandemic, rarely respond to interest rate settings.
Hauser said there was also uncertainty about other key economic factors, including how quickly the unemployment rate might change over coming months or how businesses might deal with capacity constraints.
Household spending, which is particularly important for inflation, could alter depending on what Australians did with their money as real incomes picked up.
“Consumption also depends on the extent to which households choose to spend or save these higher incomes – and we are much less confident in that judgment,” he said.
In Canberra, the Coalition used the return of parliament after the winter recess to target the government over the cost of living and the level of government spending in the economy.
Opposition Leader Peter Dutton called on Treasurer Jim Chalmers to resign after he said he took responsibility for spending decisions contained in this year’s budget.
Chalmers, in an indication the government is changing its political attacks on the Coalition, said Labor had improved the budget bottom line, which had reduced inflationary pressures.
“We turned two big Liberal deficits into two big Labor surpluses, designed our cost-of-living relief to put downward pressure on inflation, not upward, and are providing the responsible management they were incapable of,” he said.
But data this week could undermine the government’s rhetoric on delivering real wage growth to working Australians.
AMP chief economist Shane Oliver said the June-quarter wage price index to be released on Tuesday would probably show a 0.8 per cent increase for the quarter, bringing wage growth over the year to 3.9 per cent, down from 4.1 per cent.
“It would still be modest real wage growth and wouldn’t make up for the fall in the last few years,” he said.
“Unless there’s a shock, like a figure above 4.2 per cent a year, the RBA is unlikely to drop its tightening bias.”
At 3.9 per cent, wage growth would be just ahead of inflation.
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