Australia's consumer prices climbed 5.1% in the year to March, a surge that has pushed the Reserve Bank toward its first interest rate rise in more than a decade, just as voters prepare to choose a government. The bank, long careful to appear above the political fray, now faces a familiar human dilemma of timing: act and be accused of meddling in an election, or wait and be accused of hiding the truth. Its choice will shape how ordinary households feel the pressures of a world disrupted by war and shortages, and it will test whether an independent institution can keep its composure when the ca
Australia's Central Bank Faces a Political Minefield as Inflation Forces a Rate Hike Before the Election
It is inflation that the RBA targets, not wages.
Mark
Why is a rate decision this tangled? Doesn't the bank just follow the inflation number?
Mimi
Mostly it does, and that's what the banks are urging. But the timing falls inside an election campaign, so whichever date it picks can be read politically.
Luke
Worth saying what's solid here: inflation of 5.1% and the 2-3% target are reported figures. The 'it will hike on May 3' part is forecast, not fact.
Mark
How firm is the forecast, then?
Mimi
Markets fully price a rise to 0.25%, and the Reuters median says 15 basis points. Three of four major banks want May.
Luke
But the poll was 32 economists, and the question on pre-election hikes was answered by 20 of them, 13 saying yes. That's a lean, not a consensus.
Mark
And the fourth bank?
Mimi
It says June, only because the RBA said it wanted wage data due May 18.
Luke
Which is a reminder the bank itself hasn't announced a decision. Everything about May 3 is expectation.
Mark
What about 2007?
Mimi
The RBA moved weeks before that election and the government lost. The source offers it as precedent, not as cause.
Luke
Right, and nothing here says the hike would swing votes either way. That's unknown.
Il Polso
- Inflation has jumped to 5.1%, far beyond the Reserve Bank's 2-3% target, and markets are racing ahead of the central bank's own timetable.
- A May 3 rate decision lands in the middle of a tight federal campaign, forcing a choice between two kinds of political exposure.
- Major lenders are pressing hard for an immediate hike, while the bank has signalled it wants to see wage figures due May 18 first.
- Trajectory points toward a first rise from the 0.1% emergency low, with further increases expected to follow quickly through the year.
Australia's consumer prices climbed 5.1% in the year to March, a surge that has pushed the Reserve Bank toward its first interest rate rise in more than a decade, just as voters prepare to choose a government. The bank, long careful to appear above the political fray, now faces a familiar human dilemma of timing: act and be accused of meddling in an election, or wait and be accused of hiding the truth. Its choice will shape how ordinary households feel the pressures of a world disrupted by war and shortages, and it will test whether an independent institution can keep its composure when the calendar and the economy refuse to cooperate.
Consumer prices in Australia rose 5.1% in the year to March, a figure well beyond even the gloomiest forecasts. Inflation has reached a 20-year high, and the measures the Reserve Bank watches most closely have broken through the top of its 2-3% target range. Analysts had expected the bank to wait until June before lifting its cash rate from the emergency low of 0.1%, but markets have moved faster and now price a first rise in May.
The timing is the problem. The bank must decide at its May 3 meeting, in the heat of a close election against the Labor opposition on May 21, whether to move now or wait for wage data due May 18. Most major lenders say waiting is no longer prudent, since the bank targets inflation rather than wages. Yet either path carries risk: acting mid-campaign could anger the government, and delaying could look like politics outranking policy, or like withholding bad news from voters.
The government has tried to cushion households, halving petrol excise and handing pensioners and veterans a cash payment, while blaming global shocks linked to the Ukraine conflict. Labor argues the government is willing to watch real wages fall. The decision is due on May 3, with the wage data and the election following in quick succession.
Consumer prices in Australia rose 5.1% in the year to March, a figure that landed this week well above even the most pessimistic forecast, and it has upended the schedule the country's central bank thought it was keeping. Inflation reached a 20-year high in the first quarter, and the underlying measures the Reserve Bank of Australia watches most closely broke through the top of its 2-3% target range.
Until then, analysts had assumed the bank would lift its cash rate from the emergency low of 0.1% at its June 7 review, after seeing more data on wages and the broader economy. Markets moved quickly instead. They now price a first increase in May, fully pricing a rise to 0.25%, and they expect another 225 basis points of increases before the end of the year. It would be the bank's first rate rise in more than a decade.
The complication is the calendar. The Liberal-National government faces a close contest against the Labor opposition on May 21, and the RBA must decide whether to move at its May 3 meeting, mid-campaign, or wait until early June. A Reuters poll of 32 economists, conducted April 27-29, found a median forecast of a 15 basis point increase next week. Asked whether the bank should raise rates before the election, 13 of 20 respondents said yes.
The case for acting is made most bluntly by the banks. Three of the four major Australian lenders are calling for a May hike, and the fourth tips June only because the RBA has said it would prefer to see wage data due May 18. Westpac chief economist Bill Evans said the inflation number removes the luxury of waiting for more labour market information, and that the board will have to act on May 3. ANZ senior economist Felicity Emmett argued that the breadth and momentum of the price report make waiting for wages imprudent, adding that the RBA targets inflation, not wages.
Both options carry political risk. A hike during the campaign would be sure to ruffle the government. A delay would expose the bank to accusations of putting politics ahead of sound policy, something it has always strenuously avoided. If it waits until June, Labor could also ask why the bank held back the bad news from voters, particularly when a rapid run of increases is expected afterward.
There is precedent for moving in the middle of a campaign. The RBA changed rates weeks before the 2007 ballot, which the Liberal-National government of the day went on to lose. This time the bank has an added burden: both major parties have committed to a review of its past performance, aimed at fixing any perceived shortcomings.
The cost of living is the issue voters name most often in opinion polls. Fearing a backlash, the government in its budget last month halved the excise duty on petrol and gave A$250 in cash to pensioners and veterans. Prime Minister Scott Morrison, who is campaigning on sound economic management, has blamed inflation on the Ukraine conflict and global supply bottlenecks. Labor says the government is content to watch real wages fall.
The decision comes on May 3. The wage data follows on May 18, and the election on May 21.
Citazioni salienti
Waiting for additional labour market information is now a luxury; the RBA board will have to act on May 3.— Bill Evans, Westpac chief economist
It is inflation that the RBA targets, not wages.— Felicity Emmett, ANZ senior economist
Vuoi la storia completa?
Leggi l'originale su Devdiscourse ↗
Economy & Finance