RBA: Upbeat July minutes - AmpGFX

While the media focused on the neutral rate discussion in the July minutes, and the RBA went out of its way to hose down its significance, perhaps it has been forgotten how surprising more upbeat the minutes were relative to the actual July policy statement, or minutes from earlier months, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes

“They noted that, “The value of retail sales had increased in April, consistent with liaison reports that suggested conditions in the retail sector had improved. Members noted that the recent pick-up in growth in employment should also support a pick-up in household income growth, and therefore consumption growth, in the period ahead.”

“They acknowledged for the first time the boost in demand from increased government spending on infrastructure.  It said, “The most recent Australian and state government budgets suggested that fiscal policy would be more expansionary in 2017/18 than had previously been expected. Some of this expansion was expected to come from more spending on public infrastructure, particularly in New South Wales. Reflecting this, work yet to be done on public infrastructure had increased in recent quarters to a relatively high share of GDP. Members noted that infrastructure investment was expected to have significant positive spillovers to other parts of the economy. Non-residential building approvals had also risen in recent months.”

“The minutes also mentioned two factors that may tend to lift wages and inflation, albeit perhaps temporarily.  A higher minimum wage increase of 3.3% to take effect on 1 July, and higher electricity wholesale prices.  These factors may result in a somewhat higher RBA inflation forecast in the next year in its quarterly statement on monetary policy.”

“Perhaps more importantly, the July minutes said, “Members noted that the strength of recent labour market data had removed some of the downside risk in the Bank’s forecast of wage growth.”

“Less downside risk for wages growth may be another reason to see some lift in the bottom of the range of forecasts, and thus the appearance of a higher midpoint projections for growth and inflation.”

“The RBA July minutes, also included in their final paragraph that, “Members regarded the improvement in the world economy over the preceding months as a welcome development.”  An upgrade to the global outlook, which has been accompanied recently by higher commodity prices, is also like to result is some upward revision to growth.”