RBA must hold

May 19, 2011

RBA and Interest Rates

Whatever the data since the RBA Board meeting this month it has been unequivicol in its message that the RBA should be in no rush to hike rates in June or even July in our view.

We are unabashed believers that the Household retrenchment is structural not transient, as the RBA believes, so we are at odds with them on that and thus view the economy through a different lens. We are also not as fixated on the Phillips Curve – Unemployment Inflation paper, that the RBA released last year, as your average market pundit. Rather we believe that this is a warning of what might occur not a certainty that it will occur.

So, on behalf of the domestic consumption economy we welcome another piece of data today that seems to support our view that we have a more benign economic environment than the RBA would have us believe.

Average Weekly Ordinary Time Earnings were just released and showed that, like the Wage Cost Index yesterday, wages are not accelerating and infact in this measure in the big employment sectors like Retail Trade, Accommodation and Food Services and Admin Services they actually went backwards. Health care which is another big employer was up only 0.5% while mining and associated industries were up just 1%.

  

Overall it is a picture of decelerating wage gains not accelerating. So no need for a tightening here with everything else that is buffeting the economy.

Here is our post over at MacroBusiness

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  1. Weekend Reading – Stuff we found interesting this week | Lighthouse Securities - May 21, 2011

    […] Oh and even though the RBA minutes were as Hawkish as they come the data is very very different. […]

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