Reserve Bank needs to learn its job – fast

SORRY governor, wimpish words just don’t cut it. You are presiding over the highest inflation we have had in the ‘New Reserve Bank Era’ – that’s, since then treasurer Peter Costello and then RBA governor Ian Macfarlane formally agreed in 1996 to the 2-3 per cent inflation target.

The official ABS figures showed inflation hitting 6.1 per cent in the June year. That matched the essentially artificial figure reached – very briefly – with the GST in 2000, the highest since 1990.

In fact, the true today inflation is the near-8 per cent annualised prices surge in the June six months. That’s the reality – sharply higher petrol, food, electricity, gas, housing etc etc prices – that 26 million Australians are experiencing every day. Now, yes, you have more or less recognised that, with the forecast of inflation “peaking” at

7.75 per cent over 2022.

And again, yes, the inflation surge is – mostly – not your or the RBA’s fault. It’s Covid; it’s the government-Treasury overly hysterical spending response; it’s the global supply chain freezes; it’s China; it’s Russia invading Ukraine; it’s a lot of things ‘out there’, yes.

Although a year-and-ahalf of ‘free money’ from your zero interest rate and massive money printing was not exactly ‘antiinflationary’. But yes, conceding it’s mostly not your fault, the very blunt right now reality is that it’s your job to fix it. It’s your job to get inflation back down to 2-3 per cent.

It’s your job to do that above everything else. You don’t actually have another job. And you only ‘do it’ if you do it in a reasonably timely fashion. What is getting inflation back into the 2-3 per cent “over time” supposed to mean? One year? Two years? Five years?

Oh yes, you are “forecasting” inflation will be “around” 3 per cent by the end of 2024.

First off, a forecast is mostly a wish in the dark and anything but a delivered reality. But in any event, what does “around” mean? Is 3.5 per cent near enough?

Second, that is an ambition that just doesn’t meet your or the RBA’s KPIs. What: you’ll do your job in 2½ years time? Maybe?

Your wimpish rhetoric betrays a complete inability to understand either your job or what has to be done.

In Tuesday’s statement, you talked repeatedly of “normalising” monetary policy.

No, it has to go way beyond “normalising” to being actively antiinflationary. The task is made both greater and more urgent by your failure to get moving quickly enough.

As I’ve detailed, the RBNZ stopped its ‘Covid emergency’ money-printing in July last year. The RBA kept printing into February this year.

The RBNZ made its first rate hike in October, our RBA only – reluctantly, after the ‘shock’ March quarter CPI surge – hiked in May this year.

That was the RBNZ starting to normalise monetary policy through July-October last year; now it’s moved to doing its core job – attacking too-high inflation. And backing it up with anything-but-wimpish words.

In it’s last – rate-hiking – statement in mid-July, RBNZ governor Adrian Orr said that it aimed to “tighten monetary conditions at pace

(my emphasis)”. Not, wimpishly, “normalise” but

tighten. And fast.

The RBNZ was “resolute” to get inflation back to its 1-3 per cent range.

In contrast, our RBA only placed a “high priority” on the return of inflation to the 2–3 per cent range over time.

“High priority”? It’s the RBA’s one and only job!

And “over time” – like, as the forecasts so embarrassingly state, might

(no promises, now) – only happen by 2025?

Do we really have to teach a new generation of Reserve Bankers why even a ‘little bit of inflation’ is so devastating?

And pay the even more devastating penalty as they ‘learn’?