Focus will now centre on the August meeting of the Reserve Bank board for the next possible rate rise after comments yesterday by Governor Glenn Stevens in a speech in Brisbane.
In his first speech for a couple of months, Mr Stephens told a business lunch that: "New information will, as always, be important in our monthly assessments of what monetary policy needs to do.
“As far as prices are concerned, we will get another comprehensive round of data in late July."
The markets immediately took that as a "Rate Rise Looms" situation and boosted the Aussie dollar half a cent to more than $US1.07 in trading after the speech was made.
The RBA board meets on August 2 and it will have available the June quarter Consumer Price Inflation figures (and the RBA’s own measurements of core inflation) which will be issued in late July.
It will also have retail sales, building approvals, car sales, trade data and housing finance data for May from the ABS.
August 2 though sees the House Price Index for the June quarter released by the ABS, along with building approvals for June. They are out at 11.30 am and will be available for the RBA meeting.
Retail sales and the trade figures for June (and approximate data for the 2011 financial year) will be out on August 3.
So the RBA will be in a good position to assess the state of the economy and whether a rate rise will be needed.
The August 2 board meeting will also have available the updated internal forecast from RBA staff about the economy, with the latest growth and inflation projections.
They will be published on Friday, August 5 in the RBA’s third Statement of Monetary Policy will be released.
The second statement, published on May 6, along with the post board meeting statement three days earlier, changed the outlook for rates and moved us onto the current "Rate Rise Looms" footing.
But the post-June RBA board meeting statement from Mr Stevens seemed to back off from the tough line in the May statements.
In yesterday’s speech he said the expansionary forces were work on an Australian economy "that was widely regarded as very fully employed by early 2008, and that experienced only a fairly mild and short downturn thereafter.
"As of today, measures of capacity utilisation are not as high as at the end of 2007, and unemployment is not as low as it was then.
"Nonetheless, the degree of slack in the economy overall does not seem large in comparison with the apparent size of the expansion in resources sector income and investment now under way.
"With that general outlook, it follows that macroeconomic policies must be configured in the expectation that there will need to be some degree of restraint.
"Monetary policy has already been exerting some restraint for a while. Looking ahead, our most recent analysis (as published in early May) concluded that the underlying rate of inflation is more likely to rise than fall over the next couple of years.
"This central expectation – subject to all the usual uncertainties inherent in forecasting – suggests, as we said at the time, that ‘further tightening of monetary policy is likely to be required at some point for inflation to remain consistent with the 2–3 per cent medium-term target’.
"It remains, though, a matter for judgement by the Board as to whether that point has been reached.
"The last inflation figures for the March quarter showed a jump in the underlying rate of inflation to more than 0.8 per cent a quarter, which would push the annual rate above the bank’s target of 3 per cent if it continued."
Since then a number of bits of data, but especially the labour force figures for April and May have confirmed a weakening in sectors of the economy, along with a drop off in confidence, for both consumers (see separate story (and business).
The national accounts (and the consumer sentiment survey) confirmed that consumers are still cautious and saving heavily.
Wage growth is running at a round 3.8% to 4% annual, but labour’s share of the national income cake is still at historically low levels, despite the sharp rise in wages in the resources sector.
The RBA last increased the overnight cash rate in November of last year to the current rate of 4.75%.
If it goes to 5% (which the National Australia Bank says the central bank will do in August), it could stay there for quite a while, resources boom or no resources boom.
But while many commentators have taken Mr Stevens’ comments as signalling a possible rate rise in August, he only said the board will have a bit of up to date data available by that meeting to examine, along with the new forecasts on growth and inflation.
So it is very likely that there could be no rate rise looms in August. We just don’t know.
