Our investment strategist Stephen Miller shares his thoughts on the likely outcome from today’s RBA meeting – ‘no real prospect of any policy change’ – and discusses likely future moves in the cash rate in light of rising inflation and the conflict between Russia and Ukraine.

The RBA meets today (1 March) with no real prospect of any policy change.

Recent communication suggests that the RBA would be ‘patient’ in withdrawing any policy stimulus. If anything, recent wage developments and the uncertainties wrought by the Russia / Ukraine conflict would only reinforce the RBA’s ‘patient’ disposition. Such themes are likely to be enunciated in the Governor’s Statement that accompanies the announcement of an unchanged stance.

However, policy challenges remain.

On the surface, wage growth, as measured by the Wage Price Index (WPI), remains largely contained. However, there are some indications that suggest labour market pressures were intensifying as 2021 came to an end. For example, the private sector WPI that includes bonuses showed annual growth of 3.0% – the highest rate of annual increase in 8 years. Curiously, in my view, the RBA focuses on the ex-bonus measure of the WPI. Measures that include bonuses are likely to be more obviously pro-cyclical and more indicative of inflation currents than measures that exclude them. Measures that exclude bonus or incentive payments are likely to be more subject to the “wage inertia” features (both upwards and downwards) that the RBA Governor has previously referenced.  Nevertheless, and despite the unemployment rate at levels not seen since the mid-1970s, it is difficult to argue that wage growth is sufficient to warrant the RBA changing course.

Click here to read Stephen’s full article.