GOODBYE RATE CUT!
Australian March quarter CPI above expectation. While improving slightly it still remains stubbornly above RBA targets and is taking longer than hoped to come down to acceptable levels.
More concerning is that the main contributors included rents and healthcare - essentials for most people! No longer can we blame supply chains, overseas conflicts etc. We are now seeing home grown, service driven inflation.
My major concern is this is now becoming baked into wage expectations. While nobody can deny that childcare workers, firefighters etc etc "deserve" to be paid more..........it has implications for government budgets and the CPI.
With a trimmed mean CPI in the March Quarter of 4.0%, we are still well above the RBA target of 2.0-3.0%. The RBA has forecast it will take some time to get back to target but I think we have to acknowledge this also means it will take some time for interest rates to start coming down.
So for now it's goodbye rate cuts (some optimists were still looking for a mid-year rate cut until only recently!)
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The Australian Economy grew in the last quarter - or did it?
The ABS reported that the economy grew by 0.2% in the quarter. BUT - and it is an important but - per capita GDP fell for the third consecutive quarter.
In plain language the pie is getting bigger but there are more of us sharing it (population growth) so each of us is getting a smaller piece of the pie.
It is no wonder therefore that consumers are not feeling confident. As the ABS noted in the release "Households ... wound back spending in discretionary areas including hotels, cafes and restaurants, cigarettes and tobacco, new vehicle purchases and clothing and footwear,”
Net exports contributed to GDP growth however this was not due to a boom in Australian exports but rather a collapse in imports reflecting the weak consumer spending.
The good news in the release is that, for those waiting for relief on the high interest rate on their mortgage, rate cuts are definitely on the horizon.
Economics 101 and energy markets
An economics lesson for our politicians:
If you restrict supply (ban gas exploration) then with unchanged or growing demand the result will be higher prices!
If you restrict prices to below market level this will discourage production (gas exploration) and lead to shortages and oh yes eventually higher prices!!