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Wage pressures bubbling up Data released earlier in the week showed that pay increases under newly-inked enterprise bargaining agreements (EBAs) have started to surge in Australia. Employees covered by new EBAs received an annualised pay hike of 3.0% in …
5th May 2023
RBNZ to relax lending rules On Wednesday, the RBNZ unveiled its proposal to ease Loan-to-Value Ratio (LVR) restrictions on mortgage lending by banks. With house prices now 18% below their January 2022 peak, the RBNZ has judged that threats to financial …
28th April 2023
New Zealand’s housing downturn not over yet According to data released by REINZ earlier this week, the median house price in New Zealand fell by 2.2% in seasonally-adjusted m/m terms in March. With house prices already down by 18% from their January 2022 …
21st April 2023
On April 13 th a three-member panel delivered its review of Australia’s migration system to the Home Affairs minister, Claire O’Neil. Although the review is unlikely to be published before next month, it is already stoking debate over whether the ongoing …
14th April 2023
The RBA’s decision to keep rates on hold at its April meeting has reignited debate over whether the Bank’s tightening cycle is at an end. Financial markets certainly seem to think this is the case. However, our view, and the analyst consensus, is that the …
6th April 2023
Wage-price spiral still looking unlikely Ahead of today’s deadline for initial submissions to the 2022-23 Annual Wage Review, stakeholders have been haggling over increases to the minimum wage this year. The Australian Council of Trade Unions has backed a …
31st March 2023
The dovish tone of the RBA's March minutes has heightened the risks to our forecast for two more 25bp rate hikes in April and May. However, the Board did reiterate that its decision regarding a pause would hinge on the economic data released before its …
24th March 2023
Amid growing concerns about the global economic backdrop , financial markets not only believe that the RBA is done tightening, but that rate cuts are on the horizon. (See Chart 1.) However, we’re not convinced. The latest data don’t yet show domestic …
17th March 2023
Governor Phil Lowe’s proclamation at Wednesday’s AFR business summit that the RBA was closer to a pause in interest-rate increases has fed speculation of a dovish pivot on the part of the Board. Indeed, financial markets have tamped down their …
10th March 2023
While Q4 GDP was broadly in line with our expectations , a look under the hood shows that the Australian consumer is on much weaker ground than we had anticipated. The starting point for our pessimism is the ongoing weakness in household incomes. Indeed, …
3rd March 2023
RBA’s hawkishness suggests rates will rise for a few more months However, softer incoming data suggest that the peak in rates isn’t far off Looming slowdown in activity and inflation opens door for rate cuts before year-end The RBA adopted a more …
1st March 2023
Over the past week we’ve learned two important pieces of information. First, the housing downturn, which has been the most rapid in Australia’s modern history so far, came to an abrupt halt in February as prices bounced back in Sydney and Melbourne. …
24th February 2023
The 11,500 drop in employment in January marked the second consecutive fall and we think it marks the beginning of a sustained period of labour market slackening. In annual terms, employment will still be up around 2.5% this quarter, but if our downbeat …
17th February 2023
With trimmed mean inflation surpassing the Bank’s November forecast in Q4, the RBA turned more hawkish when it lifted the cash rate by 25bp on Tuesday. Today’s Statement on Monetary Policy shows that the Bank expects inflation to only touch the top end of …
10th February 2023
Australia’s house prices are still falling rapidly and there is no bottom in sight. According to CoreLogic, prices in the eight capital cities fell another 1.1% m/m in January – the same pace of decline as in each of the three months before. That took the …
3rd February 2023
This week’s Australian CPI data delivered an unwelcome surprise for the RBA. The headline rate rose from 7.3% to 7.8% in Q4, compared with an analyst consensus of 7.5%. While that was lower than the RBA had been expecting back in November (8.0%), the …
27th January 2023
Real incomes rising despite soaring inflation The biggest news coming out of New Zealand this week was the resignation of Labour Party PM Jacinda Ardern. The conservative National Party is leading the polls ahead of the next election in October and has …
20th January 2023
Inflation strong, consumption resilient On balance, the economic data released this week are consistent with our view that the RBA has more work to do. For a start, inflation rose back up from 6.9% to 7.3% in November, with trimmed mean inflation reaching …
13th January 2023
End of China’s zero-Covid to boost travel exports Media reports suggest that China will start to import Australian coal from April. We explained here why the impact on the economy should be modest. A more important development is the end of zero-Covid in …
6th January 2023
NZ activity outlook plunges to near record low Following the Reserve Bank of New Zealand’s hawkish 75bp rate hike last month, several clients asked us if New Zealand is the canary in the coalmine. The evidence suggests it may well be: the RBNZ was the …
23rd December 2022
Revisiting the energy price cap The Australian government revealed details of its energy price cap on Friday and there are two points worth making. First, the $125 cap on coal prices refers to a lower-grade type of coal than we had thought, which means …
16th December 2022
Consumer spending surpasses pre-virus levels The main driver behind the 0.6% q/q rise in Australia’s Q3 GDP was a 1.1% q/q increase in consumption, which lifted spending above its pre-virus trend for the first time since the start of the pandemic. The …
9th December 2022
Soft data prompt repricing of rate expectations The financial markets this week scaled back their expectations for interest rate hikes by the RBA and are now pricing in a peak in the cash rate of 3.6%, down from 3.9% last week. (See Chart 1.) Chart 1: …
2nd December 2022
RBNZ willing to send New Zealand into recession While the analyst consensus is that New Zealand will generate decent GDP growth of just under 2% next year, we already predicted last month that the economy will enter recession. And with the RBNZ this week …
25th November 2022
Even though wage growth surpassed 3% for the first time since 2012 last quarter, and unemployment is back at a record low , the tight labour market has not been a major driver of the recent surge in inflation. In contrast to the US or New Zealand, wage …
18th November 2022
Savings rate fell below pre-virus level in Q3 Comments by RBA Deputy Governor Bullock suggest that the risks to our above-consensus policy rate forecasts are shifting to the downside. Bullock noted today that the Bank is getting closer to the point where …
11th November 2022
RBA increasingly worried about wage-price spiral The Reserve Bank of Australia lifted the cash rate by 25bp on Tuesday as we and most other analysts had anticipated and the marked upward revision to its inflation forecasts support our view that the Bank …
4th November 2022
Bank won’t make an about-face The stronger than expected Q3 inflation print has prompted some commentators to forecast a larger 50bp rate hike at next week’s RBA meeting following the step down from the four 50bp hikes in recent months to a smaller 25bp …
28th October 2022
Minutes signal RBA not done yet The RBA this week signalled that even though it slowed the pace of tightening at its last meeting, it is not done yet. In a speech on Wednesday, Deputy Governor Bullock showed that the higher frequency of the RBA’s policy …
21st October 2022
RBA flags higher neutral interest rate (sort of) This week’s speech by Reserve Bank of Australia Assistant Governor Luci Ellis on the neutral interest rate was an odd affair. The last time the Bank published an estimate of the neutral rate was in 2017, …
14th October 2022
Bank not done tightening yet Following the RBA’s surprise decision to hike the cash rate by 25bp instead of the 50bp widely anticipated, the financial markets now price in a peak of 3.6% by mid-2023 instead of 4.2% just before the meeting. Some …
7th October 2022
Budget deficit will continue to narrow The Treasurer confirmed this week that the deficit in the underlying cash balance in 2021/22 narrowed to just 1.4% of GDP instead of the 3.5% predicted in the March budget, which was the largest forecast miss …
30th September 2022
Aussie falls to our year-end forecast With the Fed delivering a hawkish 75bp rate hike by signalling that it will continue tightening aggressively, the Australian dollar has slumped to US$0.66, on par with our end-year forecast. The exchange rate …
23rd September 2022
Hawkish signals from Lowe tilt the balance The release of stronger-than-expected US inflation figures on Tuesday prompted a small repricing of market expectations for the upcoming RBA meeting in October Markets now price in around a 50% chance of …
16th September 2022
Reopening boom will soon run its course The 0.9% q/q rise in Australia’s Q2 GDP was weaker than our forecast of 1.5% q/q. To be sure, that was partly due to a huge drag from inventories. In fact, the 2.2% q/q jump in consumption was even stronger than …
9th September 2022
Jobs summit tweaks migration goalposts The headlines were dominated by the Jobs Summit this week, where the Labor government announced that it will lift the 2022/23 cap on the annual number of permanent migrants from the current 160,000 to 195,000. …
2nd September 2022
GDP growth is holding up The August S&P Global flash PMIs are consistent with our view that the euro-zone is entering recession. And with inflation set to hit 14.5% early next year, the UK economy will shrink before long, too. The composite PMI for the …
26th August 2022
Inflation hits 7% in June The Australian Bureau of Statistics published a preliminary estimate of its new monthly CPI indicator this week. There are two key points. First, monthly inflation was nearly 7% in June, much higher than the Q2 figure of 6.1%. …
19th August 2022
ABS will publish monthly inflation figures It’s been a long time coming, but the Australian Bureau of Statistics revealed this week that it will start publishing monthly in addition to the existing quarterly data on consumer prices. We hope the new …
12th August 2022
RBA turns more pessimistic The RBA delivered yet another 50bp rate hike on Tuesday as widely anticipated. However, following the release of weaker-than-expected Q2 inflation data last week, financial markets are now pricing in a peak in the cash rate of …
5th August 2022
Housing downturn to bite next year Australian Treasurer Jim Chalmers revealed on Thursday that the government now expects GDP growth to slow from 3.75% in the financial year that ended in June to 3% in 2022/23 and to 2% 2023/24. Our view is that the …
29th July 2022
Commodity prices falling With the price of Brent crude oil and some other commodity prices having fallen in recent weeks, the inflation outlook has become a little more nuanced. However, domestic inflationary pressures are still strengthening. The drop in …
22nd July 2022
Labour market tightening rapidly On balance, the economic data released this week are consistent with our view that the Reserve Bank of Australia will tighten policy more aggressively than most anticipate. Admittedly, the further slide in consumer …
15th July 2022
GDP growth looking solid this year The available evidence suggests that Australia’s households are so far shrugging off the headwinds from rising interest rates and falling real incomes. In last week’s Weekly , we discounted the weakness in the ABS’ …
8th July 2022
House prices are in free fall CoreLogic reported that seasonally adjusted house prices in the eight capital cities fell 0.6% m/m in June, following the 0.4% drop in May. That marks the sharpest fall since 2019, and the housing downturn is only just …
1st July 2022
RBA review won’t change inflation target Treasurer Jim Chalmers butted heads with RBA Governor Phillip Lowe this week over who would lead the forthcoming review of monetary policy. Chalmers denied the Governor’s wish that the review be jointly led by the …
24th June 2022
Wage growth set to rise The 5.2% increase in the Australian minimum wage announced by the Fair Work Commission this week was even bigger than the 5.1% y/y rise in the CPI that Prime Minister Anthony Albanese had suggested the minimum wage should match. …
17th June 2022
Bank set to deliver 50bp hikes in July and August We argued two months ago that “most analysts are overestimating the near-term negative impact of RBA rate hikes on household finances and are therefore underestimating the degree of tightening required …
10th June 2022
Mining underinvestment taking its toll The 0.8% q/q rise in Q1 GDP left output 4.4% above its pre-pandemic peak, one of the strongest performances among advanced economies. (See Chart 1.) With stagnating real incomes weighing on consumer confidence and …
3rd June 2022
Surge in utility bills adds to price pressures The activity data released this week were a mixed bag. While retail sales powered ahead in April, real private investment probably fell in Q1. What’s more, it now looks likely that house prices started to …
27th May 2022