Michael Pascoe writes:

Pistol Pete Costello was rather desperately preparing the ground to blame the RBA for the looming rise. “Desperately” because he knows the pain is going to be felt most in the Sydney and Melbourne marginal seats, where the nervous nelly backbenches will be happy to blame the Treasurer for their consequent pain.

Unfortunately for Cossie, in the instant analysis rush of Crikey’s deadline yesterday, we were too hopeful in our contrarian view. On first blush, the petrol-soaked banana skin looked like it might be worth a slip, but not a fall. Looking a bit longer though and, yes, there’s a chance of doing a Jessica down the monetary steps. As Macquarie Bank’s Rory Robertson has put it to clients:

The RBA is not about to hike because banana prices just quadrupled or because fuel prices jumped further in Q2. The RBA is set to hike again because its best measures of trend inflation show a material and somewhat unexpected acceleration. Policymakers probably are keen for more insurance against the increased risk of higher inflation in the medium term.

But Robertson goes on to make an interesting point about an unknown – how successful the government’s workplace laws will be in preventing wage rises:

Central bankers are professional worrywarts: the RBA will be anxious that headline inflation jumping from 3% to 4% threatens to lift inflationary expectations and, in turn, boost demands for “catch up” wage rises.

**At the same time, several policy initiatives from Canberra are working against stronger wages growth. Specifically, the removal of the “no-disadvantage test” in wage-setting, the weakening of trade-union power and “unfair dismissal” laws, and record levels of “skilled” immigration all work to put downward pressure on wages growth (and the unemployment rate, and upward pressure on employment and participation rates).

So the government that promised to keep interest rates down might succeed by bashing workers over the head. Meanwhile, it’s worth remembering interest rate rises aren’t bad news for everyone. Net lenders, i.e. the rich and those baby boomers who are well set up for retirement, won’t mind much thanks to a little more interest for them from their term deposits (although their share portfolio won’t appreciate it).

And who were the biggest winners from Costello’s last budget, the one he kept Crikey out of? The rich and the better off among the baby boomers.

Peter Fray

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Peter Fray
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