The Reserve Bank of Australia (RBA) recently released minutes from its monetary policy board meeting, highlighting ‘materially’ higher inflation and stronger economic forecasts. This shift reflects the central bank’s move from an easing to a tightening bias. However, some analysts question whether the RBA has fully grasped the reasons behind these economic changes. The RBA is the central bank of Australia. Its main role is to keep inflation low and stable, and to promote full employment and the economic prosperity and welfare of the Australian people.
Rabobank strategist Michael Every suggests that traditional models of aggregate demand and supply may no longer be relevant in today’s inflationary world. He argues that geopolitical shifts and emerging cracks in macroeconomic models are significant factors. Billionaire investor Ray Dalio has even declared that the current world order has broken down, citing increasing conflicts between major global powers.
Another force absent from the RBA’s deliberations is the rapid advancement of artificial intelligence (AI). New AI models are sparking debate about their potential to replicate or even surpass human skills, leading to warnings of potential job losses. While there is limited evidence of AI’s impact in Australian economic data, US labor market data suggests a possible future of stagnant employment and widening inequality. These forces—geopolitical breakdown, AI, and polarizing inequality—are prompting investors to adapt.
Investors appear to be favoring hard assets like raw materials and precious metals over asset-light technology businesses. This is evident in the rising gold prices, the strong performance of critical minerals stocks, and the decline in software stocks. The shift away from US stocks and into emerging markets further illustrates this recalibration, reflecting a recognition that commodities and emerging markets are essential for AI development, re-industrialization, and navigating a changing world order.
