EDITORIAL: Rates prediction contests mask real economic problems

Interest rates are steady. No, they are set to climb. But wait — they are about to come down.

Actually they are probably not going to move. But they might. Maybe. Or they might not.

It seems scarcely a week goes past without economists or money market traders making observations about economic data and predicting what it means for the Reserve Bank of Australia’s approach to the cash rate, and therefore home loan interest rates.

One can’t help but wonder if there are rates tipping score charts up on the fridges by the coffee machines in the city towers.

But this is not a game.

These numbers have a real impact in the real world, on real people.

If the numbers fall badly it can be a major blow to the financial position of millions of Australians with home loans, and all the potential ramifications associated with that.

A key part of the process is, of course, the clues thrown out from time to time by the RBA, and especially any utterances by RBA governor Michele Bullock.

The latest clue from Ms Bullock came on Tuesday.

The governor suggested another increase that would take the cash rate to a 15-year high of 4.6 per cent may be necessary.

“The (RBA) board is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed,” she said.

The release of the latest inflation data on Wednesday produced another round of predictions — this time mostly that the data made another rate hike this year, on top of those in February, March and May, was unlikely.

Headline inflation fell to 3.8 per cent in June from 4 per cent in May. Treasurer Jim Chalmers leapt on the figure to declare the result “an encouraging outcome that shows we’ve made progress on inflation since the Budget”.

Nonetheless, the annual pace of headline inflation has now been above the RBA’s 2-3 per cent target for 11 straight months.

And the RBA’s preferred underlying measure of inflation without volatile price items was still also high at 3.6 per cent, and has also consistently been above the Reserve Bank band since August last year.

Right there is a signal worth noting — as was the message Ms Bullock fired towards Dr Chalmers on Tuesday.

“One thing monetary policy can’t do . . . is address the economy’s slow productivity growth,” she said.

“While this persists, the ability of the economy to grow without generating inflation is constrained, and Australians will continue to experience limited growth in real wages.”

In other words, the underlying economic problems are making her task that much harder.

Ms Bullock has one lever.

That has been unable to bring inflation back within the RBA’s target range.

Another impediment in the way of the bank is the level of government spending, which is helping drive inflation.

This was targeted by shadow treasurer Tim Wilson, who said the Albanese Government’s “spending addiction risks higher interest rates”.

The Government needs to take off its ideological blinkers.

It needs to ditch its restrictive pro-union industrial relations policies, and cut red and green tape holding back business to allow it to flourish.

Responsibility for the editorial comment is taken by Editor-In-Chief Christopher Dore