The next move in rates (whenever it comes) 2024 edition

i think it's just a case of reporters having no clue about the things they write about, and using wrong terminology.

 

I wouldn't be surprised if they don't scrap the idea of getting back into the target band. It feels like the mortgage cliff is already impacting parts of the economy. My prediction is we start seeing this data flowing through soon (although somewhat hidden by the huge immigration)

 

Similarly I wonder what the strategy may be given:

• there is a bit of an unwind of globalisation since COVID, meaning we may struggle to supress certain prices by just offshoring it all like we used to
• geopolitcal tensions have and will likely continue to disrupt supply and prices for certain things such as oil/petrol. Does it make sense to nuke the economy over something mortgage holders don't really get much control over? They can drive less on weekends but people still need to get to work.
• they keep harping on about productivity growth but we are becoming a more services based economy. Services jobs typically are less 'productive' in the way they measure vs blue collar / manufacturing type jobs.

I can't predict how they will spin things but I do feel there has to be some acknowledgement of the above somewhere in time.

 

This isn't good

Big print, domestic based too, and rising.

Way off where it needs to be.

Concering that its rising, and the level is concerning too. So too is the mix of where its coming from.

Rate cuts - thats gone for now. This needed to be <0.7-0.8%, i.e. below market expectations, not above it - like the last print which was 0.6% and very good.

An aggressive central bank will look at current conditions, inflation at 1%, domestic services type inflation at 1.2-1.5%, unemployment below 4%....and they could fire a couple more rises.

Don't think they will given all the slowing economy data, but there's enough there for them to justify it.

There's pretty minimal economic growth at the moment though, so the labour market will slow increasingly over the course of the year. More rate cuts just accelerates that further.

Makes the 'narrow path' trickier today than yesterday!

 

disagree on the justification bit.

At worst this pushes out rate cuts, there is no substantive argument to raise again, at least not in that print.

We are still trending downward on Annual CPI basis. We are 0.6 outside the RBA's target band for inflation on 2 - 3% and are trending well to land within that band inside 2024.

 

Isn't this just a yearly Health premium + Education fee bump? (typical of Q1 prints)

There's a not-impossible chance that the April monthly print will come in at (or even juuuuust below 3%) at this rate...

I expect next quarterly prints will look much better at face value. That's not to say it's acceptable Health/Education be rising at this pace - But there's another 12 months before we see what that looks like again... And by that stage, it's impact may hardly matter.

 

I think the big wild card that shouldn't be over looked, is that it is an election year in the US. Stuff happens in election years.

 

Agree once growth is factored in, it should slow inflation later.

But that characterisation of TODAYS inflation data is generous.

We are 1.1% of the target rate (3.6% vs 2.5% target), nearly 50% higher than where it needs to be. We have been out of target for a long time. Inflation has RISEN in QTR 1 not fallen, and annualising it, we’re now back to an inflation rate ABOVE our annual headline figure. Ie the pace of inflation in 2024 is higher than our yearly figure. Services inflation, which is sticky, is running past DOUBLE the target range, and rising. The direction is concerning.

On top of that, we have a 1% interest rate differential with many peer economies.

We also have a mammoth tax injection kicking in a few months, with fiscal policy now clearly adding to inflation in the months ahead (Q3 2024).

On top of all this, bar a 18 month recent window, we have the best employment market in 50 years. Better than any other period we’ve seen.

To be fair, I think many central bankers around the world will read our data and think - wow, the RBA are soft here.

I suspect in a few weeks the RBA will strengthen the ‘recent data shows the inflation fight isn’t over’ and add back their tightening bias.

Agree it’s not enough to raise rates BUT if Q2 is like this again in 3 months + unemployment is still around 4%, then they should and most likely will be raising rates in H2 2024. Not cutting.

It’s why this data peice is so important. At 0.6%, the RBA have all handbrakes off them and can cut rates if growth/employment slows. But at 1% and the characterisation of this, means they have handbrakes on them again.

 

Redom, the RBA CPI target range is 2 TO 3 % CPI. Not 2.5%.

there is a meaningful difference.

Saying we are 1.1% off target does not constitute what the RBA actually targets? its much more accurate to suggest we are 0.6 outside the acceptable target range.

 

As usual the arguments are the same echoes of
"it's only because of xyz, next one will be different".
It's not and it won't.

And we are not where we should be, as OCR rates should be at 5.5% right now.
Consumption is still very conspicuous, productivity decreasing and non partecipation rate increasing.
None of it was ever "transitory" as in short term. The game was set by late 2021.

And btw NZ is in recession, 2nd in 18 mths and still no rate cuts.

 

Noisy, eek, the engine is sputtering... We're "0.6%" outside the target band - The check engine light is on.

Meanwhile the April monthly print will be even lower... *shrug*

But i'll get in before it bumps up in following months due to base effects, because maths, all hail the doomers! Seems some are not good at math.

 

Higher rates are better for the economy and society as a whole.
And will reduce costs of living for most people.
Nothing doom about it all.

You math makes you wronger for longer.

And even though there's much more to it than that (and your faulty maths), the engine is still running hot and revving >5%.

 

WAS 2-3%

This has now changed to 2.5% as part of the changes to the RBA governance following its review. Along with full employment, which the RBA seems to think were already past too.

And for longer term CONTEXT, a 4% annualised figure is way off where it needs to be. Disturbing given that inflation has been out of band for years too and domestic sticky based inflation metrics are not great either.

Next quarter comes in the same as Q1, the reported inflation rate will be rising again. I.e. the downpath on the reported inflation rate will be over and itll be rising again (to 3.8% with another 1% print).

The general media narrative that 'inflation came down today', is BS. They don't want to explain that a 1.4% print was taken out of the data set, and that the next number taken out is 0.8%.

More importantly, the RBA certainly wont be reading it that way too and will be concerned that their 2024 inflation figure is EARLY 3%, while the Q1 reading is 4%. A bit troubling, because the next print needs to be around 0.6% again to get them back on path.

There's not too much positive, if anything, from this reading. Its damaging too.

I think the RBA will be 'patient' with it and get one more print, i hope so, given the forward leaning growth indicators (noting the last time they got news like this from the September print, they raised rates).

BUT

They can easily justify a 'we cant do nothing' message, 'we will respond to the data'...'the data has spoken'.

 

if you look at the graph that you have posted carefully, you can see that in every previous bout of inflation, when it was coming down, it was pretty much always doing 1 down 1 up. just like it's doing now. and it takes about a year to settle down

 

Oh dear, it's certainly not as simple as this - I think i'll move on. Nothing to be gained here.

Arguably possibly a year of Health and Education inflation has front-loaded into the Q1 print.

 

RBA still has 2-3% as part of their official policy as noted on their website. maybe the haven't updated it.

Inflation Target | RBA

 

The target band is still 2-3% but now specifically calls out the midpoint as the target. There is still scope for wiggle room - If 2.5% was the unequivocal target, the band would have been done away with. This flexibility I assume relates to time and balancing risks against full employment.

I'd argue this change was made not to tackle the top-end of the band, but ensure inflation is not sitting at the bottom-end of the band. IE - Inflation was too low pre-pandemic.

Seems everyone has forgotten what the world was like pre-pandemic.

 

ahhh ok fair enough

 

Safe to say RBA rates are not going down to 2-3% in the next 2 years.

Any brokers have a view on how people are generally doing? Seems like the party music is still pumping with today's rates.

 

that's not safe to say at all in any way shape or form. No one can predict (including leading economists) anything with accuracy over the span of 4 weeks let alone 2 years.

surely COVID has taught us all not to make black and white predictions.