Former Goldman Sachs chief economist, Tim Toohey. is beating the bearish drum today:
“The RBA’s rate hikes already delivered, not to mention an additional 50bps or more that they suddenly seem intent on delivering, are about to unleash enormous financial pain on the lower income and younger households that risks an abrupt stoppage in retail sales and potentially a sharp jump in the unemployment rate and a raft of delinquencies,” Yarra Capital Management’s Mr Toohey said in a new report to clients.
“They are even more vulnerable to rising interest rates purely from a debt servicing perspective, let alone the fact that food, rent and utilities take up a large share of their income and from the perspective that they have little other by way of assets or financial buffers,” Mr Toohey said.
…Mr Toohey said the RBA was at risk of “burying” poorer and younger households.
The data run has been bad:
- soft data like PMIs have been stalled for months;
- hard data for Q4 was bad as well with consecutive weak employment reports, bad GDP, and a severe household squeeze;
- soft employment data is indicating a 1% rise in unemployment is dead ahead, and
- hard wages data has peaked much earlier than expected (except by MB) thanks to the record mass immigration surge.
There is no danger of a wage-price spiral. There is only a profits-price spiral:
Therefore, the only problem the RBA has is whether or not oligopolistic businesses will keep gaming the system with margin gouging.
The outlook on that front has improved with energy price caps but expectations are not so promising:
That said, the ABS’ monthly inflation indicator for January fell 0.4% MoM after several months of tearaway growth and several strong growth categories, like houses, are falling away fast.
Finally, the fixed-rate mortgage cliff begins in earnest next month and even Australia’s protected breed of corporate ubermensch can’t hike prices into collapsing demand.
The RBA has plenty to go on here to drop the hawkish rhetoric even if it will want to wait a few more months to see disinflation embedded.
There is every chance that tomorrow is Phil Lowe’s last-ever rate hike.
