No Game Changer In August Meeting Minutes

A first skim of the minutes from the RBA's most recent monetary policy meeting provided nothing in the way of game changing information.

• The Bank noted that "the effect of high inflation on wage- and price-setting behaviour presented a material risk to the inflation outlook. Members noted that, if inflation expectations and the general inflation psychology shifted, higher inflation would be more persistent."
• Elsewhere, there was a little more colour re: the risks surrounding household consumption: "members observed that the key source of uncertainty for the domestic growth outlook related to the competing forces affecting household spending. Household incomes were currently being sustained by strong labour demand, which was feeding into strong growth in employment and hours worked, and would ultimately lead to stronger wages growth. It was possible that labour market conditions continued to surprise on the upside, especially given that declining real wages made hiring more labour attractive for some employers. Working in the other direction, high inflation and rising interest rates were raising the cost of living and impinging on households' capacity to consume out of current income. So far the strength of labour incomes had been the more important driver, but the balance between these two opposing forces could shift over time and it was difficult to predict how this balance would be resolved. Some of the other uncertainties that could weigh on consumption included the possibility that housing prices could decline further or induce more of a wealth effect on consumption than expected. Further supply shocks, including global shocks to energy prices and further waves of COVID-19, could also constrain growth in activity more broadly."
• On wages, "members noted that firms continued to expect wages growth to be higher in the period ahead. In liaison, over 60 per cent of private sector firms indicated that they expected to raise wages by more than 3 per cent over the year ahead. Recent high inflation outcomes were a factor in current wage negotiations, but to date most firms expected to raise wages by less than inflation. Multi-year enterprise bargaining agreements, which are common in the public sector and also used by some private sector firms, were expected to restrain the pace of the pick-up in wages growth in Australia. That said, a number of state governments had offered lump-sum payments to some of their public sector employees, in part to offset higher living costs."