Australia: RBA’s Bullock: Colour on a Hawkish Hold

Research evidence excerpt

Australia: RBA’s Bullock: Colour on a Hawkish Hold

Goldman Sachs Australia

noted that the recent Fair Work Decision outcome was higher than the RBA had

expected and it would put upwards pressure on the RBA’s wages forecasts. She

noted that “the oil price curve was pretty much on the baseline.”

n On labour market conditions, the Governor downplayed the recent

higher-than-expected unemployment rate, noting that “there is volatility” and that

“leading indicators … [are] either stable or look like they’ve improved a little bit”.

She also emphasized that “the labour market has to ease if we are going to bring

inflation down”. She also noted that “at 4.5% we still think the labour market is a bit

tight at that level” (the RBA last confirmed their NAIRU estimate of 4.6% in

February).

n On growth the Governor reiterated that “overall the flow of data and developments

since May have been broadly consistent with our expectations” and that it was

“necessary to slow demand to get make sure [the RBA] get inflation down”. She

noted that “spending and investment had not softened materially, but also stressed

“don’t be surprised if growth slows” and that “growth must grow more slowly than

potential to get inflation down”.

n On the impacts of recent policies announced in the recent Budget, the Governor

noted that planned changes to housing tax policies, were “not a massive financial

stability issue”. When asked about the potential impacts of an extended fuel excise

tax cut, the Governor noted that “if it brings down headline inflation, at the margin

that might be helpful for inflation expectations, but it reverses”.

n On developments in the Middle East, the Governor observed it could still take some

time for oil trade to normalize and that an orderly adjustment is not assured. The