Telling you what to expect I remember a time when analysts were keen to see the latest press release from the RBA. We’d sit in front of our inboxes waiting for the 2:30pm announcement. Managers would interrupt meetings without knocking to give a three-word announcement on the outcome. A room full of market nerds would collectively make oohs and ahhs sounds on the news. Those days are no longer. Why? Because the RBA rarely does anything that would induce shock and awe in the Australian market. Even now I find myself forgetting to check in on the RBA announcements looking for clues from our central bank. Nowadays there is rarely a surprise. That alone should tell you how fragile our local economy and markets are. Australian prosperity rests on the hidden rule that the RBA won’t upset the market by doing something unexpected. Take our foray into a bond buying program. The conversation around the RBA starting our own version of quantitative easing (QE) began in March last year…before being implemented several months later. Not long after our first $100 billion batch of QE was announced, a plan to have a second $100 billion was scheduled. That second round of purchases begins next week. Yet none of this rattled the Aussie market, simply because the RBA has told out months in advance on what to expect. And guess what, the RBA noted on Tuesday that they are prepared to extend bond buying for the foreseeable future… Once again, the RBA is telling you what to expect. There are no more surprises. Rather that reassurance the RBA will do nothing to spook markets… It’ll go lower Perhaps the only things to really dig into from the RBA from Tuesday, is not just the admittance that the RBA will ‘not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.’ But also, it’s the absence of denying that the rate will go lower. That’s perhaps the only newsworthy item from their announcement. Our central bank will do whatever they can to engineer inflation. And if that means lowering the rate even further, they won’t rule it out. See, on top of inflation not doing what the RBA want, and on top of the Aussie dollar defying central banking policy and flying free with the market, and on top of all those pesky Aussies maxing out their borrowing abilities to buy their own stack of bricks, the RBA has a much bigger problem on their hands… ...and that is the lack of wage growth. It appears that no amount of cheap credit and stimulatory policies will get inflation to budge. Leaving us with this nugget from their press release: ‘…wage and price pressures are subdued and are expected to remain so for some years. The economy is operating with considerable spare capacity and unemployment is still too high. ‘It will take some time to reduce this spare capacity and for the labour market to be tight enough to generate wage increases that are consistent with achieving the inflation target.’
We already have asset price inflation. You can see that in the value of houses. Food prices are increasing, though for now that can be attributed to drought, fire, and flooding conditioning disrupting our agriculture. Can the RBA get wages to budge? No. And I’ll show you why tomorrow. Until next time, Shae Russell,
Editor, The Daily Reckoning Australia | 
