Michael Pascoe on this morning’s RBA decision to raise interest rates by .25%
:


The
good news: the Reserve Bank is convinced the international economy will
continue to grow strongly, the commodities boom will hold for some
years, consumers aren’t being hurt by higher petrol prices and
Australia is going gang busters with lots of work for anyone who wants
it. That’s why it wants to dampen our spending enthusiasm with an
interest rate rise.

The bad news: The Reserve Bank might be wrong about any of the above.

The
worse news: Your future just dimmed appreciably if you don’t have
children, you do have a big mortgage on a home that requires you to
drive a long distance to work, or if you work for Qantas but you’re not
one of the top few executives. Tick all those boxes and you’re facing a
reduction in your pay, not much of a tax cut, higher mortgage payments
and you already know about your petrol bill.

The worst news:
There might be quite a few people more or less in the above situation.
Maybe not specifically working for Qantas with its promise
to sharply reduce labor costs, but perhaps at one of the NSW or
Victorian employers who are looking to at least freeze wages if not cut
them using the new IR laws. If wages don’t keep up with inflation and
mortgage payments and petrol prices eat into income, spending contracts
and employment falls. That’s not even Economics 101 – it’s the kindy
primer. And if all those “ifs” line up, see “the bad news” section.

The
money market has already priced in another interest rate rise in the
second half of this year, so enjoy you tax cut – if it stays in your
pocket long enough to be felt.

Peter Fray

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