The Reserve Bank and the Ideology of Mass Immigration By Brian Simpson

The crusty Reserve Bank of Australia, has issued its latest report on monetary policy and the Australian economy. Household disposable income will continue to decrease until, they optimistically predict, around the middle of 2024. Inflation will remain at 4.5 per cent to the end of this year, and will not drop under 3 per cent until late 2025, so expect the cost-of-living crisis to continue as well.

But of interest to us is the Reserve Banks cautious stance on mass immigration, which they say is not impacting upon inflation, but both factors offset each other. Even the ABC report coughs at this one: “However, if increased population growth has not greatly affected wages growth, it is unclear how it is not adding to inflation, given observations elsewhere in the RBA's statement.

"Australia's working age population rose by 2.8 per cent over the year to September; this was the strongest rate of working age population growth since this series began in February 1979," the report observed.

"This has supported demand conditions for Australian businesses. In particular, total spending has been supported by strong growth in international students and tourists over the past year. This includes a large contribution from Chinese tourists and students since the start of 2023, despite a slowing economic recovery in China. "Total spending, rather than consumption, determines the demand conditions that feed into the price-setting behaviour of consumer-facing firms.”

More people does mean more demand, but as in the example of housing and rentals, where costs have risen, inevitable supply shortages have led to price rises. Naturally, the Reserve Bank is part of the globalist immigration cult and we would not expect an analysis that would raise any concerns about the largest intake of migrants in Australia’s history. Nothing to see here folks, move on back to your tent cities!

 

https://www.abc.net.au/news/2023-11-10/reserve-bank-interest-rates-statement-on-monetary-policy-nov-23/103088858?fbclid=IwAR0iASRLb5qPXPWbicZQB96UBRW9SlhDA7EysHTH4rqld2LMRCON72CkANg

“Stronger-than-expected population growth is helping to prop up business pricing power at the same time as it is putting a lid on wages growth, according to the Reserve Bank. 

Key points:

  • The RBA forecasts inflation will remain at 4.5 per cent to the end of this year, and will not fall back under 3 per cent until late 2025
  • The bank expects real household disposable income to keep falling until the second half of next year
  • The bank has downgraded household consumption forecasts, despite a record 2.8 per cent annual growth in the working age population

In its latest statement on monetary policy, the Reserve Bank updated its economic forecasts, which explain why it raised interest rates this month.

As expected, the bank dramatically increased its short-term inflation forecasts in response to the most recent Consumer Price Index data from the ABS, which showed inflation accelerating in the September quarter.

The RBA now expects both the headline and its preferred measure of trimmed mean inflation to come in at 4.5 per cent for the year to December, which is a 0.6 percentage point upgrade to that core measure.

Moreover, it expects inflation to remain close to 4 per cent through to the middle of next year, before gradually drifting back just under the top of its 2-3 per cent target range by the end of 2025.

These forecasts were based on the market pricing for interest rates, which had factored in Tuesday's cash rate increase to 4.35 per cent.

JP Morgan economist Tom Kennedy said the major upgrades to the forecasts were largely expected by the market, with Bloomberg data showing the market is pricing in around a 50 per cent chance of another rate rise before the RBA stops.

"We retain our view for the cash rate to remain on hold but with a hiking bias retained into 1H24 [the first half of 2024]," Mr Kennedy wrote.

The Commonwealth Bank's head of Australian economics, Gareth Aird, broadly agrees.

"The board would prefer not to raise rates again in this cycle. But they are very much data dependent," he argued.

"This means the board is willing to raise the cash rate again if the economic data, particularly around inflation, comes in stronger than their updated forecasts."

Mr Aird said the current forecasts imply a December quarter inflation reading of 1 per cent when that data comes out early next year, and a Wage Price Index reading of 1.3 per cent for the September quarter (out next week) and 0.9 per cent for the December quarter (out in February).

More interesting are the dynamics driving this persistent inflation, and how this affects which sections of society bear the greatest cost from it.

"Output growth this year has had a bit more momentum than was expected three months ago, which is partly the result of stronger-than-expected growth in population, as well as more strength in the growth of private and public investment," the bank's economists noted.

"Business investment and public demand are expected to continue to contribute to output growth in coming quarters, supported by strong population growth, an easing in supply constraints and a large pipeline of projects, including for public infrastructure."

The bank noted the staffing and materials constraints holding back, and pushing up the cost of, many public and private infrastructure projects, particularly in transport and renewable energy, and the IMF recently called for some of these public projects to be delayed to take some demand out of the economy right now.

Population growth effects on inflation 'roughly offset' each other

The population element of the equation is interesting because the RBA concludes, overall, that it is not adding to inflation pressures.

"The supply and demand effects of stronger-than-expected population growth appear to have roughly offset in aggregate, while helping to alleviate labour shortages in specific sectors, such as hospitality," the RBA argued.

"This has helped to contain wage pressures in some affected industries and geographic areas, though increased migration has not materially affected aggregate wages growth."

However, if increased population growth has not greatly affected wages growth, it is unclear how it is not adding to inflation, given observations elsewhere in the RBA's statement.

"Australia's working age population rose by 2.8 per cent over the year to September; this was the strongest rate of working age population growth since this series began in February 1979," the report observed.

"This has supported demand conditions for Australian businesses. In particular, total spending has been supported by strong growth in international students and tourists over the past year. This includes a large contribution from Chinese tourists and students since the start of 2023, despite a slowing economic recovery in China.

"Total spending, rather than consumption, determines the demand conditions that feed into the price-setting behaviour of consumer-facing firms.

 

"However, an increase in international students also supports the supply side of the economy as many students participate in the labour force."

Translated from economic jargon, more people means more demand, even if each person is cutting their individual spending, and it is this total demand that determines whether businesses can pass on cost increases, and potentially even add on a bit more profit margin.

Even more directly, the sudden surge in population is a key factor driving record-low rental vacancy rates and the steepest rent increases in decades.

Real wages to keep plunging well into 2024

The boost to the supply side dampens inflation by ensuring an adequate supply of products and services to meet demand, but also by meaning employers do not need to further bid up the price of labour, as they would need to if workers were more scarce.

The Reserve Bank has noted from various sources, including business liaison, that annual wages growth in the private sector appears to have peaked at about 4 per cent.

This was reflected in a small downgrade to its Wage Price Index forecasts and a much larger reduction in both outcomes and near-term forecasts for average earnings per hour, which were slashed by 1.8 percentage points for the year to June and 2.7 per cent for the year to December, and slightly downgraded for next year.

Due to the combination of stubbornly high inflation and relatively weak income growth, the RBA now expects real household disposable income — a key measure of living standards — to keep sliding sharply until the second half of next year.

So while the business sector, overall, appears to be doing fine, it appears working-age households will continue to do the heavy lifting on containing inflation via higher interest payments, cutting their individual consumption and falls in real wages that are expected to continue until the middle of next year.

Most economists do not expect the rates component of household pressure to start easing before the second half of next year.

Mr Aird is expecting the first rate cut to occur in September 2024, with two more before the end of next year taking the cash rate back to 3.6 per cent, before three more cuts in early 2025.

"If population growth remains elevated or consumption strengthens due to rising home prices, it could make the RBA's job of returning inflation to target more difficult," he warned.

"In such a scenario the cash rate may sit at its peak in the cycle for longer than we currently anticipate.

"Fiscal policy is also a key source of uncertainty. Any loosening in fiscal policy at either the state or federal level would put upward pressure on demand and by extension inflation (note that the already legislated 2024 income tax cuts will provide some stimulus to the economy over 2024/25)."

 

 

 

 

 

 

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Sunday, 03 March 2024

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