RBA June minutes: Wage rises higher than expected

Reserve Bank of Australia

Summary Headlines via Reuters, bolding is mine:

  • Board considered rate rise of 25bp or holding steady and
    reconsidering at later meeting
  • Arguments were “finely balanced” but board decided case for immediate hike
    was stronger
  • Hike would provide
    greater confidence inflation would return to target over “reasonable”
  • Balance of risks to
    inflation had shifted to the upside since May meeting
  • Longer inflation
    remained above target more risk inflation expectations would rise
  • Service price
    inflation not easing as yet, goods disinflation less than in some
    other countries
  • Planned increases in
    electricity prices and high rents added to inflation risks
  • Risk wages and
    prices could become implicitly indexed to past high inflation
  • Productivity
    disappointing and needed to pick up to offset wage increases
  • Fair work increase
    in wages higher than expected, public wage awards also rising
  • Rebound in house
    prices if sustained implied less drag on consumption than first
  • Signs consumer
    spending slowing further in Q2, some households under significant
    financial pressure
  • Lags in policy meant
    risk past tightening could lead to sharper economic slowdown
  • Falls in commodity,
    shipping prices could lessen inflation pressure
  • Board to closely
    monitor household spending, financial stress
  • Board reaffirmed
    willingness to do what was necessary to bring inflation to target

Full text:

The minutes show then that:

  • “Members recognised the strength of both sets of arguments, concluding that the arguments were finely balanced,”
  • “They judged, though, that the case to raise the cash rate at this meeting was the stronger one.”

This was after inflation held stronger than expected. It seems to me the RBA is still wearing those rose-coloured glasses and are over-optimistic. The case for a rate hike appeared to be pretty much bordering on a no-brainer for me. The jobs data last week make me lean the same way for the next meeting, coming up on July 4. But the RBA don’t appear to share my view. And thus they risk slipping further behind the curve if they do not hike at the next meeting. I think that at the next meeting they’ll decide ‘on balance’ to hike.

This article was written by Eamonn Sheridan at www.forexlive.com. Source