MNI BRIEF: RBA Minutes Flag Wage, Population Risk

Population and wage growth data accumulated since March were two key factors that drove the Reserve Bank of Australia's April 4 decision to hold rates at 3.6% and will likely inform future decisions as the Bank monitors the "lag in the transmission" of its past hikes on the economy, according to the minutes of its latest meeting released Tuesday.

The two factors presented risk and the full effect of interest rate hikes to date on the economy were yet to be fully felt or observed, the minutes revealed. “Members noted that [population growth] could put significant pressure on Australia’s existing capital stock, especially housing, which would in turn manifest in higher consumer prices,” the minutes said. “They observed that there were already signs that the recent fall in housing prices might be smaller and more short-lived than expected.”

The minutes added wage growth, particularly in the public sector, also represented risk. “The flowthrough to inflation from wages in social and public sector industries is somewhat diffuse, given the prevalence of administered prices, but [the Board] judged that it was nonetheless likely to have some impact.

Ex-RBA officials believe the Bank will likely need to hike rates above 4% to contain inflation (see: MNI: Over-Optimistic RBA To Be Forced To Hike More-Ex Staffers).