RBA Fall Further Behind – Prepare for takeoff

Criticism continues to mount on the Reserve Bank of Australia for acting with too little too late in containing inflation in Australia.  Having lifted rates for the first time in a decade to just 0.35% earlier this month, most other central banks are aggressively hiking.  Just across ‘the ditch’ RBNZ this week hiked again to 2% and project they will hit 3.25% by the end of the year and 3.95% in 2023.  The following meme hits home…

As with this one…

To be fair (maybe) they were likely reticent during and in the lead up to the election but it is becoming abundantly clear the RBA is a proverbial deer in the headlights as the arbiter between rampant inflation and one of the worlds biggest property bubbles and world’s largest holder of private debt.  The latest Reuters poll has Aussie property falling to rise just 1% this year (wiping out previous gains) and falling 8% outright in 2023 BEFORE any demonstrable rise by the RBA.

Often compared with Canada, there too we are well behind with Canada having risen rates from 0.25% to 1% and expectations of 1.5% next week.  Property prices, having risen 50% in just the last 2 years have already fallen 6.4% in just the month of April in the capital.  In New Zealand they have already seen a 5% decline nationally since November and 10% in Auckland.  Westpac are forecasting a 15% national decline peak to trough and point out that is a real 25% fall taking into account inflation.

In Australia prices have fallen but relatively only mildly so far.  That could indicate resilience or could reflect the aforementioned RBA hike lag yet to hit home.  We have so far seen 3 consecutive weeks of national capitals drops, each getting worse and the week to yesterday printing a -0.15% weekly drop.  That annualised is 7.8% however it is both getting worse and regardless somewhat meaningless to simply annualise a weekly figure.  Yesterday we reported of the sharp declines in home sales in the more advanced tightening cycle of the US. 

Whilst on the US, but applicable to all nations at present, the following excerpt from Bloomberg succinctly captures the central banks’ dilemma…

That said, and for all the talk of this being supply lead inflation (and without a doubt that is the main factor) just check out the following chart on Australian retail spending…

The RBA are faced with little choice it seems, will be playing catchup, and the impacts on the economy yet to be fully felt. That sees a double stagflationary whammy of still strong inflation and dwindling economic growth with wages nowhere near keeping up. Albo might be celebrating the win but he comes in at a very precarious time in the nation’s economic history with many pointing the finger at the ‘too little too late’ RBA.  Invest wisely.