{"id":669,"date":"2023-06-13T11:34:07","date_gmt":"2023-06-13T01:34:07","guid":{"rendered":"https:\/\/masonline.com.au\/?p=669"},"modified":"2023-06-22T12:42:41","modified_gmt":"2023-06-22T02:42:41","slug":"nab-economic-commentary-monetary-policy","status":"publish","type":"post","link":"https:\/\/masonline.com.au\/nab-economic-commentary-monetary-policy\/","title":{"rendered":"NAB Economic Commentary: Monetary Policy"},"content":{"rendered":"[vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\n
While the recent run of activity data including our business survey clearly show the economy is now slowing \u2013 as consumer spending begins to stall \u2013 inflation and wage data still show that price pressures remain elevated. This was highlighted by the Q1 national accounts which saw GDP growth of just 0.2% q\/q and increasing signs of rates and inflation weighing on the consumer, while dwelling investment (typically very sensitive to rates, but also in this cycle cost pressures) continued to fall. The household income account showed a further moderation in the savings rate.<\/p>\n
The nominal side of the accounts reflects what we already know in terms of passing the peak in inflationary pressure, but both the DFD and consumption deflators remain elevated. Interestingly, average earnings per hour (the broadest measure of labour costs, including bonuses and other payments) while accelerating continues to track below 4%. However, nominal unit labour costs which adjust labour cost growth for productivity, continue to track very strongly rising 2% q\/q and tracking at near 8% y\/y.[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\n
Global goods inflation pressures are waning as growth slows and freight costs have normalised pointing to a significant easing in upstream cost pressures for domestic consumer goods prices, albeit with some uncertainty about how quickly businesses will pass on any easing in prices to the consumer.<\/p>\n
With the labour market remaining tight and wage growth accelerating the key risks to inflation remaining higher for longer come from the services side \u2013 as they have globally. While measured wage growth, according to the WPI, at 3.7% y\/y is considerably below some other advanced economies, the average wage increase of those people (in the private sector) receiving a pay rise in recent quarters is above 4% pointing to the risk that overall WPI will continue to strengthen in coming quarters, with the most recent National Wage Case providing for even faster rates of wage growth for a significant proportion of the labour force, albeit the lower paid.<\/p>\n
With weak cyclical productivity growth this is unlikely to see inflation track quickly towards the middle of the 2- 3% target band and indeed the RBA has noted that at present wage growth is consistent with inflation returning to the target band with the proviso that \u201cproductivity growth picks up\u201d. Ultimately, recent tightening actions have been about inflation expectations \u2013 while previously well anchored there is a growing risk that ongoing price rises continue to feed back into price setting behaviour in the economy.<\/p>\n
Alan Oster (Group Chief Economist), M: +(61 0) 414 444 652<\/strong><\/br> Alongside the upgrade to our interest rate forecasts, we have pulled back our expectations for growth this year and next. We now see GDP growth of just 0.5% over 2023 and 0.9% over 2024. While the economy remained resilient through 2022, there are increasing signs that interest rates are beginning to flow through with nominal (and real) spending growth slowing, an ongoing impact on housing construction and softening capex expectations.<\/p>\n The labour market remains tight, but unemployment seems to be beginning to edge up (and we see it lagging activity by around 6 months). We now see unemployment of 4.3% by year\u2019s end, 4.6% by mid-2024 and 5% by the end of 2024.<\/p>\n It should also be noted that there is still some outstanding pass-through of previous interest rate rises to occur, with around 75bps of hikes yet to be passed onto mortgage holders. On top of this, financial conditions will see a further marginal tightening as the TFF rolls off and RBA bond holdings begin to roll off the balance sheet. The bulk of fixed rate loans will also begin to reset in Q2 and follow on in Q3, though there are some lags in that pass-through as well.[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\n On our expectation that the economy will slow noticeably in the second half of 2023 and into 2024, seeing annual GDP growth of around 0.5% this year (its slowest rate since the 1990s recession) and the unemployment rate rising above the NAIRU the RBA will need to return to forward-looking metrics when setting policy. At present the bank continues to focus on lagging indicators \u2013 prices and the labour market \u2013 while calibrating its stance of policy. However, by mid-2024 we expect slower growth to have had a significant impact on the labour market and see some easing in inflation pressure. Therefore, we continue to expect the cash rate to normalise to a more neutral rate of around 3% with rate cuts likely to commence in Q2 2024.<\/p>\n [\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\n Jacqui Brand Dean Pearson Gareth Spence Brody Viney Phin Ziebell Robert De Iure Brien McDonald Steven Wu Tony Kelly Gerard Burg Ivan Colhoun Skye Masters This document has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (\u201cNAB\u201d). Any advice contained in this document has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice in this document, NAB recommends that you consider whether the advice is appropriate for your circumstances.<\/p>\n NAB recommends that you obtain and consider the relevant Product Disclosure Statement or other disclosure document, before making any decision about a product including whether to acquire or to continue to hold it.
\nAlt: Gareth Spence (Senior Economist); Brody Viney (Senior Economist)<\/strong>[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\nRates will increasingly weigh on growth, as the RBA seeks to drive a more sustainable balance between supply and demand.<\/h3>\n
Rates to return to more neutral level in 2024<\/h3>\n
Table 1: Updated cash rate profile<\/h3>\n
Authors<\/h3>\n[\/vc_column_text][vc_row_inner column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” text_align=”left”][vc_column_inner column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/2″ tablet_width_inherit=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]Alan Oster, Group Chief Economist
\nIvan Colhoun, Chief Economist, C&IB
\nGareth Spence, Senior Economist[\/vc_column_text][\/vc_column_inner][vc_column_inner column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/2″ tablet_width_inherit=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]Tapas Strickland, Markets Economist
\nTaylor Nugent, Markets Economist
\nBrody Viney, Senior Economist[\/vc_column_text][\/vc_column_inner][\/vc_row_inner][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\nGroup Economics<\/h3>\n[\/vc_column_text][vc_row_inner column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” text_align=”left”][vc_column_inner column_padding=”padding-2-percent” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/3″ tablet_width_inherit=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]Alan Oster
\nGroup Chief Economist
\n+(61 0) 414 444 652<\/p>\n
\nExecutive Assistant
\n+(61 0) 477 716 540<\/p>\n
\nHead of Behavioural & Industry Economics
\n+(61 0) 457 517 342[\/vc_column_text][\/vc_column_inner][vc_column_inner column_padding=”padding-2-percent” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/3″ tablet_width_inherit=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\nAustralian Economics and Commodities<\/h4>\n
\nSenior Economist
\n+(61 0) 422 081 046<\/p>\n
\nSenior Economist
\n+(61 0) 452 673 400<\/p>\n
\nSenior Economist
\n+(61 0) 475 940 662[\/vc_column_text][\/vc_column_inner][vc_column_inner column_padding=”padding-2-percent” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/3″ tablet_width_inherit=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\nBehavioural & Industry Economics<\/h4>\n
\nSenior Economist \u2013 Behavioural & Industry Economics
\n+(61 0) 477 723 769<\/p>\n
\nSenior Economist \u2013 Behavioural & Industry Economics
\n+(61 0) 455 052 520<\/p>\n
\nSenior Economist \u2013 Behavioural & Industry Economics
\n+(61 0) 472 808 952[\/vc_column_text][\/vc_column_inner][\/vc_row_inner][vc_row_inner column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” text_align=”left”][vc_column_inner column_padding=”padding-2-percent” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/3″ tablet_width_inherit=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\nInternational Economics<\/h3>\n
\nSenior Economist
\n+(61 0) 477 746 237<\/p>\n
\nSenior Economist \u2013 International
\n+(61 0) 477 723 768[\/vc_column_text][\/vc_column_inner][vc_column_inner column_padding=”padding-2-percent” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/3″ tablet_width_inherit=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\nGlobal Markets Research<\/h4>\n
\nChief Economist Corporate & Institutional Banking
\n+(61 2) 9293 7168<\/p>\n
\nHead of Markets Strategy Markets, Corporate & Institutional Banking
\n+(61 2) 9295 1196[\/vc_column_text][\/vc_column_inner][vc_column_inner column_padding=”padding-2-percent” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/3″ tablet_width_inherit=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][\/vc_column_inner][\/vc_row_inner][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]\nImportant notice<\/h3>\n
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