This week the RBA increased the Target Cash Rate by 0.25% to 4.10%. This is the first time the Target Cash Rate has been above 4% in 11 years. On Tuesday morning Money Markets had priced into the Market a chance of a rate rise at 60%. This was largely in response to the Fair Work Australia announcement that the minimum wage will increase at least 5.75%.

The RBA continued to indicate upside risks to inflation, pointing to offshore trends as an indication of what could happen in Australia, as a key concern to for another rate increase this month in addition to last Month’s increase. The statement pointed to persistent strong wage growth and unit labour costs as underlying drivers of some of this concern with the RBA Governor Philip Lowe saying “Recent data indicate that the upside risks to the inflation outlook have increased and the Board has responded to this.”

Benjamin King Money Wealth’s Financial Advisor, Murray Nicol’s take on the RBA Cash Rate Statement yesterday was “the most interesting part of the statement were the comments around Productivity (“Unit labour costs are also rising briskly, with productivity growth remaining subdued” & “wages growth is still consistent with the inflation target, provided that productivity growth picks up.”).

Productivity is an important function in the Economy as an increase in Productivity leads to Higher Wages but also Lower Prices, along with Stronger Economic Growth and Higher Business Profits. I think the rhetoric from the RBA will move to the narrative that the Government and the RBA have done all they can to contain inflation. Now it is up to the Australian Workers and Businesses to improve Productivity (which is low in Australia compared to other Countries) in order to help reign in the inflation genie.”

Leave a Reply