June In Play As RBA Removes Reference To Patience

he removal of the reference to a willingness to be patient when it comes to the RBA’s guidance paragraph gives the post-meeting statement a hawkish tone, with the Bank seemingly closer to the tipping point owing to inflation dynamics, even though wage growth is below where the Bank wants it to be. The Board noted that “over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs. The Board will assess this and other incoming information as its sets policy to support full employment in Australia and inflation outcomes consistent with the target.” Q122 CPI data is due to be released on 27 April, while Q122 WPI data is due on 18 May, the former may push the RBA into action come the June meeting even if the latter disappoints, with the Bank’s May SoMP allowing for updated guidance on inflationary matters (both the May monetary policy decision and the SoMP will be released before Q122 WPI), as the Bank continues to embed further optionality when it comes to cash rate lift off.

• On labour compensation, the Bank noted that “given the tightness of the labour market, a further pick-up in aggregate wages growth and broader measures of labour costs is in prospect. This pick-up is still expected to be only gradual, although there is uncertainty about the behaviour of labour costs at historically low levels of unemployment.” The Bank noted that “job vacancies and job ads are at high levels and point to continuing strong growth in employment over the months ahead,” this is widely acknowledged.
• The Bank has also removed the reference to uncertainty surrounding the Russia-Ukraine conflict, focusing on the price pressures relating to the conflict, as opposed to economic headwinds, while reaffirming the resilience of the domestic economy. When it comes to inflation the Bak noted that “the main sources of uncertainty relate to the speed of resolution of the various supply-side issues, developments in global energy markets and the evolution of overall labour costs.”
• It would seem that Governor Lowe’s glass is more than half full.