It’s a virtual feast for Reserve Bank watchers at present.
Fresh from her debut remarks as governor on Wednesday, Michele Bullock will twice next week speak publicly — either side of the pivotal quarterly inflation data.
It’s that data set most economists expect to be persuasive in the RBA’s next determination on interest rates, with expectations shifting now to a stronger risk of a hike than they were just four weeks ago when Bullock took over.
By her own admission, the economy has faced “shock after shock after shock” and the signs are pointing towards more of them.
The soft landing the RBA hopes the economy will manage from the pandemic seems to be increasingly challenging.
Bullock’s comments this week were also instructive on inflation expectations — how the public perceives prices will move.
Economic consensus is the longer prices keep climbing, the harder it becomes to pull expectations lower.
Bullock is also now grappling with the very real prospect of an inflation rate insufficiently declining in the September quarter.
This is likely to challenge those inflation expectations, particularly, as Bullock said, with the bank keen to ensure all Australians understand what it’s trying to do in getting inflation down.
If that has to involve another rate hike — or more — that is undoubtedly going to get tougher.
Cost-of-living stresses are well-established and many people will be wondering how much further they can cut back.
It’s a fine balance, and one the Federal Government will have to back in; an early test of the relationship between Canberra and the “new” RBA.
Comments from US Federal Reserve chair Jerome Powell overnight that persistently high inflation could warrant further hikes will likely be playing on the minds of our RBA board given the IMF’s conclusion Australia’s economy is largely emulating the US and the EU, albeit on a delay of several months.
Essentially: watch the overseas experience and we’ll probably get a version of it pretty soon.
So what’s the upshot? A recession in Australia is still not on the cards but the jobs market is key. But that in itself is complex — the unemployment rate fell as more people withdrew from the market altogether.
It’s looking increasingly difficult that the unemployment rate hits 3.9 per cent by year’s end as the RBA had expected.
This means its updated forecasts due early next month will be particularly intriguing.