Stephen Walters

Independent Economist | Consultant | Board member | Keynote Speaker | Author

[Stephen Walters @optimalecon]

So, the RBA just lifted the cash rate 25bp in a board decision that was unanimous.

The reversal from the rate cut just last August matches the span of the Bank’s about-face after the GFC in 2009. Then, the cash rate had been taken to “zero” amid a global crisis.

No crisis this time, just a series of unfortunate events – inflation accelerating because of too much government spending, shocking productivity and a failed experiment by the RBA to see how low the jobless rate can go without boosting inflation.

Well, now we know.

[Stephen Walters @optimalecon]

Inflation accelerated for headline and trimmed mean and for goods and services. It’s broad-based and persistent. Annual inflation is fast approaching 4% - up significantly from the annual rate in Q3 and moving further away from the RBA’s 2-3% target range.

[Stephen Walters @optimalecon]

Confirmation today that annual inflation is accelerating on every main measure pretty much locks in an RBA rate hike - it may or may not come next week (markets now price better than a two in three chance of +25bp), but it’s coming. Probably more than one hike, too.

[Stephen Walters @optimalecon]

So, Australia’s economy generated 65,200 jobs last month (in net terms), pushing the jobless rate down to an eight-month low. On paper, that’s great news.

But the leading indicators all point the other way. One thing is sure – further interest rate cuts are off the table.