What’s eating you?

So The Reserve Bank announced that it was keeping the cash rate at 4.75 per cent. This did not surprise too many economists – especially after the GDP figures and yesterday’s job adverts. Christopher Joye (ever the inflation hawk) thinks the RBA almost certainly will have to raise them in July. But the language of the RBA suggests to some that it is less inclined to that view. Back last month, here’s how the Governor’s statement ended:

The Bank expects that, as the temporary price shocks dissipate over the coming quarters, CPI inflation will be close to target over the year ahead.

Looking through these short-term movements, however, the recent information suggests that the marked decline in underlying inflation from the peak in 2008 has now run its course. While the rising exchange rate will be helping to hold down prices for some consumer products over the coming few quarters, over the longer term inflation can be expected to increase somewhat if economic conditions evolve broadly as expected.

At today's meeting, the Board judged that the current mildly restrictive stance of monetary policy remained appropriate. In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.

This month it ended this way:

CPI inflation has risen over the past year, reflecting the effects of extreme weather and rises in utilities prices, with lower prices for traded goods providing some offset. The weather-affected prices should fall back later in the year, though substantial rises in utilities prices are still occurring. The Bank expects that, as the temporary price shocks dissipate over the coming quarters, CPI inflation will be close to target over the next 12 months.

At today's meeting, the Board judged that the current mildly restrictive stance of monetary policy remained appropriate. In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.

Yeah, big difference I know – the absence of”marked decline” and change from “increase somewhat” to “close to target”.

I love how the Governor's statements are raked over by pundits – all searching for some sort of clue. Note as well that the last paragraphs are exactly the same. This is pretty common, and is why the ‘experts’ (and bloggers) look for every little difference. Take this from last month:

Growth in employment has moderated over recent months and the unemployment rate has been little changed, near 5 per cent. Most leading indicators suggest further growth in employment, though most likely at a slower pace than in 2010. Reports of skills shortages remain confined, at this point, to the resources and related sectors. After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn.

Now compare to this month:

Growth in employment has moderated over recent months and the unemployment rate has been little changed, near 5 per cent. Most leading indicators suggest that this slower pace of employment growth is likely to continue in the near term. Reports of skills shortages remain confined, at this point, to the resources and related sectors. After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn.

Hmm what is the difference between “further growth in employment, though most likely at a slower pace” with “this slower pace of employment growth is likely to continue”??

As the double rainbow guy would say, What does it mean?

Well who knows. The thing is the RBA knows everyone is ruminating over and insinuating into each differing word more meaning than they most likely have, so it generally keeps things pretty neutral. Take for example how it compares its expectations of the result of the floods and cyclone on GDP with what happened. Back in May:

The natural disasters over the summer have reduced output in some key sectors and the resumption of coal production in flooded mines is taking longer than initially expected. It is likely this caused a decline in real GDP in the March quarter. Production levels should, however, recover over the months ahead, and there will be a mild boost to demand from the rebuilding efforts as they get under way. Over the medium term, overall growth is likely to be at trend or higher.

And now:

The floods and cyclones over the summer have reduced output in some key sectors. As a result there was a sharp fall in real GDP in the March quarter, despite a solid increase in aggregate demand. The resumption of coal production in flooded mines is taking longer than initially expected, but production levels are now increasing again and there will be a mild boost to demand from the broader rebuilding efforts as they get under way. Over the medium term, overall growth is likely to be at trend or higher.

In other words things happened the way we expected them to happen (and in case you missed it last month we think “over the medium term, overall growth is likely to be at trend or higher”).

The general outlook of Australia’s economy have not changed much either. In May:

Australia's terms of trade are reaching higher levels than assumed a few months ago, and national income is growing strongly. Private investment is picking up, mainly in the resources sector, in response to high levels of commodity prices. In the household sector thus far, in contrast, there continues to be caution in spending and borrowing, and a higher rate of saving out of current income.

In June:

Australia's terms of trade are reaching very high levels and national income has been growing strongly. Private investment is picking up, led by very large capital spending programs in the resources sector, in response to high levels of commodity prices. Outside the resources sector, investment intentions have been revised lower recently. In the household sector thus far, there continues to be a degree of caution in spending and borrowing and a higher rate of saving out of current income.

The big difference is the highlighted sentence – the rest is the same (if not verbatim) in both paragraphs. This sentence could be read as a bit of an acknowledgement of the “two-speed economy” ^TM, but is not exactly suggesting that things are tanking outside the mining sector.

One thing the RBA has also been consistent on since 2009 is the fiscal impact of the stimulus:

The impetus from earlier Australian Government spending programs is now also abating, as had been intended.

What I think we can take from the whole of this statement is that if (like Joye and others) you think the RBA should/will raise rates soon, then there is not much reason to alter that view; if you don’t, then you can probably keep that view as well. Some say the RBA should not have the market guessing, personally I think the guessing really only occurs because we trip over every word looking for certainty. For mine, I think economics and life ain’t certain. 

And on a side note, it’s good to see that the APS habit of cut and paste is also alive and well in the RBA!

***

Today Wayne Swan released some economic modelling on the impact of the carbon tax (well at least if it was set at $20 a tonne which it likely won’t be) in a speech at the National Press Club. He revealed the impact on income:

The modelling will show real national income growing strongly under a carbon price, at an average annual rate per person of around 1.1 per cent until 2050 instead of 1.2 per cent. This means a carbon price would only reduce annual growth in GNI per person by about one-tenth of 1 percentage point.

He was also on Fran Kelly this morning where he said:

KELLY: And if my maths is correct, and that's no means a given, it would be a small difference wouldn't it?  If it's a hit to the national economy of 0.1 of 1 per cent.

TREASURER: That's right.

KELLY: Then 0.1 per cent of $65,000 is $65.00 per annum.  Is that the cost of a carbon tax to each of us?

TREASURER: Well, it's a relatively small amount of money Fran, and that's the whole point.  The modelling shows that we can grow our economy strongly, grow national incomes and not have a significant impact overall on those individual incomes.

So $65 a year for someone on an income of $65,000… zero point one per cent… Not exactly big. So how did The Oz report this?

TREASURER Wayne Swan has conceded the carbon tax will eat into Australian's incomes, as he prepares to address the National Press club today to head off Tony Abbott's cost of living campaign against the tax.

Really? “Eat into Australian’s incomes”? I’m not sure what journalist Lanai Vasek is eating but at $65 a year, I’m guessing it ain’t much.

The interesting aspect of The Oz suggesting that such a figure may be a hit on “Australian's incomes”  is that today they announced from October they will be putting up a paywall for The Oz that will cost $2.95 per week or $153.40 per year.

Oddly the story in The Oz announcing this plan did not use words like “gouge”, “eat”, “strip”, “slug”, or “slap” that are usually applied to anytime the Govt seeks to take away any small bit of welfare or increases in any small way the “cost of living”.

But hey I guess if we can all afford $153, then $65 ain’t too much…

Incidentally I most likely will pay the amount – $2.95 is not much (though I wish I had an iPad – to make use of the app), but I might first see just how much (and more importantly who) they keep locked away. And also it will be interesting to see how much of their “exclusives” get picked up by other outlets. They may, for eg, keep the full Newspoll figures behind the paywall, but I bet by about 2 seconds after they are released I’ll know them from Twitter (in fact, given the Ghost Who Votes, it’ll be known on Twitter before hand).

I agree with those who say there needs to be found an on-line model that enables news organisations to get money (well if you ignore the fact that Crikey has been doing it for 10 years, and I’ve been paying them for 3 years). What I don’t agree with though is journalists who act like we consumers are cheap sponges who just want something for nothing. It wasn’t my company who decided 15-20 years ago to start giving away its content for free – that journalists’ employers did not attribute any value to their on-line labour is not their reader’s fault. And in the free market, the worth of something is what consumers are prepared to pay for it. I am quite interested to see what The Oz thinks people will pay for and what it thinks needs to stay free.