The tension between the Reserve Bank and the Albanese government could now be cut with a chainsaw.
Outwardly, bank governor Philip Lowe and Treasurer Jim Chalmers both profess the right platitudes about the respect they hold for each other, what they are achieving, and their hoped-for successes.
But the actions of each speak far louder.
The decision of the RBA to lift official interest rates to an 11-year high of 4.1 per cent was not unexpected (especially compared to the surprise hike last month). But it was still a shock – the last time the cash rate had a 4 in front of it, Queen Elizabeth was celebrating her diamond jubilee.
Lowe and the bank board couched the decision as necessary to “provide greater confidence that inflation will return to target within a reasonable timeframe”.
Inflation, he said, “erodes the value of savings, hurts family budgets, makes it harder for businesses to plan and invest, and worsens income inequality”.
It took him some time to get around to noting what the RBA’s 12 interest rate increases are doing to ordinary households. Some are “experiencing a painful squeeze”, while the combination of high interest rates and cost-of-living pressures is leading to a sharp slowdown in household spending.
The key factor behind the rate increase, according to Lowe, was recent data showing “upside risks to the inflation outlook have increased and the board has responded to this”. The only problem was there was no mention of that new data.
Thirty minutes later, Chalmers sought to explain what the RBA is up to. His opening statement exposed his growing concern about the Reserve’s actions.
“I do expect that there will be a lot of Australians who will find this decision difficult to understand and difficult to cop,” he said.
Chalmers was not just speaking about a couple living in one of the emerging suburbs of our capital city fringes where the repayments on a $500,000 mortgage are now on track to have increased by about $1200 a month since April last year.
He was speaking of the growing chorus of business operators, union leaders, workers and analysts who fear the RBA is risking the economy.
Lowe and the RBA have often talked about the “narrow path” ahead for the economy. More and more experts believe the path is now the width of single jungle vine holding up a rickety wooden bridge over a very deep chasm.
Another comment by Chalmers also went to Lowe’s statement.
While conceding wages growth was “still consistent with the inflation target”, the governor added a very important caveat – productivity growth has to pick up.
There was also a direct reference to the Fair Work Commission’s decision to lift the minimum wage.
That clearly upset the treasurer who noted the people suffering the most at present are low-income earners who most need that increase to help them pay the bills.
And, as Chalmers noted, no one can simply “click their fingers” to get productivity growing.
Analysis out of the United States this week, where productivity – like here and most other countries – has cratered since the pandemic, suggests the reason is that businesses are now clinging to staff, having struggled to get them.
That means that as output has eased, productivity as measured by output per person has tumbled. Monetary policy, which failed dismally to encourage productivity growth pre-COVID, is not going to get a lift in productivity any time soon.
Treasurers and Reserve Bank governors, with their different agendas, have often seen things differently. Paul Keating and Bernie Fraser, Peter Costello and Glenn Stevens are the two most prominent examples.
Lowe and Chalmers might be joining that select group.
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