“Rate rise looms” was the prediction this week from Goldman Sachs’ chief economist. Andrew Boak declared that he’d heard the “canary in the coal mine” on wages growth in a wages dispute between the National Union of Workers and Woolworths.
For the young folk, “the canary in the coal mine” metaphor is based on the one-time use of canaries in mines to detect noxious gases — the canary would keel over first, giving the miners time to get out. Boak seems to think wages growth is akin to toxic gases in mining, which is probably understandable given he works for Goldman Sachs. Or perhaps he was just mangling his metaphors. But in his view, “it’s entirely feasible you’re seeing a positive inflection point in wages”. And on that basis, he went on to predict a February interest rate rise from Reserve Bank — just three meetings away.
Not that Boak thinks we’ll all be cracking the champers over a return to 4% wages growth, “but we are talking about a material positive inflection point, which we think is the final piece of the puzzle for policy makers looking to start a very slow and shallow process to normalise rates”.
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Forgive us, but we’ve heard this one — sans mangled metaphors — before. There was a “rate rise looms”, ahead-of-the-pack economist’s forecast in July, when the Financial Review‘s Jacob Greber reported “the prospect of an Australian dollar above US80¢ is no barrier to the first Reserve Bank of Australia interest rate increase since 2010, says a top economist who believes the hike will happen on Melbourne Cup Day in November.”
Who was the economist tipping a November rate rise? Why, Mr Boak.
Alas, “25 Basis Points Increase” won’t be a starter in the cup on November 7 when the RBA board meets ahead of the Race That Stops The Nation.
Maybe Boak was just following his predecessor, Tim Toohey. He was a November rate rise man, too. Toohey told the Fin‘s Vesna Poljak in February that the chance of a Cup Day rise was “somewhere in the 40s and rising”. The previous November, Toohey had predicted an end-of-2017 rate hike. Toohey left Goldman Sachs earlier this year to join a hedge fund 25% owned by Ellerston Capital (which is owned by James Packer); he’ll be able to chew over his rate calls with the former target of them, ex-RBA governor Glenn Stevens who joined the hedge fund a month or so ago.
After the release of this week’s September quarter CPI, a rate increase in the first half of next year is looking in doubt — and there may be no rise at all in 2018. And as for the noxious gas of wages growth, we’ll believe that when we inhale a lungful of it.
There is nothing wrong with business economists sticking their necks out and making forecasts; it was what they are paid to do and what their employees look for. But wouldn’t you like to see them admit a wrong call or two instead of hoping everyone will forget it?