Inflation

[moXJO]

Well another 76,000 new jobs have been added, or another 76,000 people have decided to go to work, I wonder which? ?
I guess it depends how you say it.

Economists tip more rate hikes as jobs numbers smash expectations

Unemployment surprisingly falls back to 3.6 per cent, as an estimated 75,900 jobs are added to the economy.

www.abc.net.au

From the article:
Official jobs data from the Australian Bureau of Statistics (ABS) estimates that nearly 76,000 jobs were added to the economy last month, sending unemployment down to 3.6 per cent.

The strong figures came as a shock to economists, who were typically expecting 15,000 jobs to be added last month and the unemployment rate to remain steady at 3.7 per cent.

The proportion of Australians aged 15 and over either in work or looking for it — known as the participation rate — also increased to a record high of 66.9 per cent.

The participation rate rose 0.2 percentage points for women, to 62.7 per cent, and remained at 71.2 per cent for men.

"A greater share of women in Australia are employed than ever before, with their employment to population ratio and participation rate both at record highs in May," Bjorn Jarvis from the ABS said.

Rates will keep going up then.

 

[sptrawler]

The really good thing is that the majority of the new jobs are full times jobs, not just part time jobs for people topping to pay their increased mortgage.
Hours worked per person fell, which suggests these were not mostly people moving from part time work to full time which was my first thought.
Maybe there is less overtime around now with more workers in the workforce.
Mick

It is good news, considering there were nearly 500,000 migrants in the 12 months.

 

[sptrawler]

Rates will keep going up then.

There hasn't been anything that gives an indication that things are tough, all the houses for sale around Mandurah, $ht box asbestos/asbestos, tin/asbestos, doesn't matter they are all selling.
This has to get a lot/lot worse before it gets better, just because Sydney/Melbourne people that took on mega mortgages to buy the ponzi are hurting, doesn't mean everyone else is.
ATM those who can get are job are grabbing one, then you have the 500,000 migrants that came in the last 12 months.
Historically unemployment gets up to about 7-10% in a recession, so there is a way to go yet, we're still at 3-4%. All the dodgy businesses with big loans have to fold yet.
Sad, but life's like that.

 

[waterbottle]

When it breaks, which it will IMO, I don't think there will be a rapid cut at all.
There is no way they want an out of control cyclical swing to happen, I think there will be an extended period of no rate movements until the economy finds its new equilibrium and then a gradual slow step down of a half a percent at best.
They want inflation, just not at 7%, that devalues the currency too quickly and makes doing business difficult.

have a look at each rate hike cycle since the 80s. Every hiking cycle has even followed by a plateau that is then followed by rapid cuts. The only exception is a rate hike cycle in the early 90s that lead to a plateau followed by cuts to a new baseline that they managed to hold for a few years before the dot com bubble happened.

 

[sptrawler]

have a look at each rate hike cycle since the 80s. Every hiking cycle has even followed by a plateau that is then followed by rapid cuts. The only exception is a rate hike cycle in the early 90s that lead to a plateau followed by cuts to a new baseline that they managed to hold for a few years before the dot com bubble happened.

They can process a lot more date a lot quicker these days, IMO the response time will be reduced considerably and be much more precise.
Ony my thoughts.

 

[waterbottle]

They can process a lot more date a lot quicker these days, IMO the response time will be reduced considerably and be much more precise.
Ony my thoughts.

Except the Fed just took 6 weeks to wait for more data....
They may be faster these days, but they're not instantaneous.

 

[sptrawler]

Except the Fed just took 6 weeks to wait for more data....
They may be faster these days, but they're not instantaneous.

I'm not saying they are instantaneous, just saying compared to the 1980's -1990's they are, if you don't think so that's fine.
I owned a computer in the 1980's trust me they are faster now. Also they don't have to store the info on reel to reel tape or floppy discs.
As I said only my opinion, it wasn't a criticism.

 

[Smurf1976]

I don't think the stock market in particular is the target

Agreed - I'm thinking it'll be collateral damage not that they're expressly targeting it.

I do expect it to be impacted though.

 

[qldfrog]

It is good news, considering there were nearly 500,000 migrants in the 12 months.

Indeed, half a million migrants and 76000 jobs a recipe for success ..NOT

 

[over9k]

Politicians all own investment properties and the housing industry is the biggest lobby group in the country. We've been over this guys.

 

[frugal.rock]

I'm a little confused, if the blunt instrument of the RBA is rate rises, how does the Fed use the same instrument when Aus loans are mostly variable rate as opposed to the US being mostly fixed rates?

How does rate rises impact inflation over there?

 

[waterbottle]

I'm a little confused, if the blunt instrument of the RBA is rate rises, how does the Fed use the same instrument when Aus loans are mostly variable rate as opposed to the US being mostly fixed rates?

How does rate rises impact inflation over there?

Its the debate about whether central bankers actually have any impact on inflation/markets at all.
Some believe they do, others don't.
Does it matter though for us simple folk just trying to mint a few coins from ye olde market?

JPow speaks. Markets move.
PLowe speaks. Markets move.

My understanding is that by hiking rates, they increase the cost of short term credit that banks will loan out over the long term. Australian banks are insulated RE: mortgages given the majority are variable. American banks aren't given the proportion of fixed rate loans. Those that did make those loans (the smaller regionals) began blowing up in March 2023. The smaller regionals were also responsible for loaning out cash to commercial projects, whom are now finding it difficult as those banks as a whole have pulled back on credit for said projects.

 

[over9k]

I'm a little confused, if the blunt instrument of the RBA is rate rises, how does the Fed use the same instrument when Aus loans are mostly variable rate as opposed to the US being mostly fixed rates?

How does rate rises impact inflation over there?

Which loans?

 

[sptrawler]

Mortages arent the only loans, businesses large and small have loans, councils have loans, mining companies, hire companies have lines of credit, I would guess they have mark to market clauses.
Small to medium business are the largest employer by a fair margin from memory

 

[over9k]

Jobless numbers exactly the same as last time. Futures barely responded, fixed income rates are down a bit.

 

[waterbottle]

ECB hikes 25bps

Reasoning:

• Inflation to remain high until 2025 when it reaches 2.3%
• Previous inflation forecasts were too low (LOL)
• Price indicators remain strong
• Strong employment slowing down the rate of disinflation

No mention of Eurozone technical recession.
No mention of a pause...

 

[waterbottle]

Lagarde

"The journey is not over"
"We still have ground to cover"
"We will continue to raise rates in July [unless a material change occurs]"
"We are not thinking about pausing"

Reporter: Do you think you can achieve your inflation target with employment where it is now or does it have to go up? Something about terminal rate
Lagarde: I don't want to comment about the terminal rate. The Markets always ask this. We don't have one in mind. We'll know what it is once we get there based on [inflation metrics]. We spent alot of time on the labour markets. Energy played a significant role, then food. Now energy is fading and so is food. Labour, particularly wages, is playing a significant role. More people have been employed, wages are up **shakes head** and the output is where it is. There is an issue with productivity. We will continue to dissect the labour market [to understand what's happening].

 

[waterbottle]

Reporter: What does the ECB know about lag effects? You no longer will achieve your inflation target by 3 years. Will you change your upper band to 3%?
Lagarde: We have a target. We will continue to aim for 2%. We know that there is lag time. The decisions we have made - monumental in terms of speed and magnitude of hike. There is some lag time. Not so much by textbook standards (18-24months). Because it's so unprecedented, we will have to monitor it closely. Suffice to say, we are seeing it already. Are we seeing all of it [the effects?], no.

Reporter: The Bank of Canada recently restarted its bank hikes. It thought its neutral rate has risen compared to its previous expectations. Do you think the same? Will you consider skipping hikes in subsequent meetings [i.e. hike every 2nd meeting].
Lagarde: Difficult to say we are in the same position as BoC as we didn't pause. We know we have ground to cover. We have not discussed pausing or skipping. We have not begun thinking about it because we have work to do.

Reporter: Today you confirmed, repeated, that rates will be kept at restrictive levels for as long as necessary and because inflation will be above 2% in 2025, we can expect elevated rates for a long time. Is the governing council concerned [about harm to the economy]? Also asks about pandemic stimulus repayments.
Lagarde: Under the current paramaters, 2.2% in 2025 is not satisfactory and not timely, which is why we are making the decisions we are making today and later on.
From the 1st of July, banks will need to repay approx $470 billion euros. These loans should have been ~$1 trillion euros but have been staggered. They were 3 year loans issued during the pandemic. Banks have known about this for a long time.

Reporter: I am concerned about the persistence and severity of core inflation. Can you elaborate. [Also asked about corporate profits & labour contributing to inflation, and whether they can be reconciled amongst themselves]
Lagarde: The labour market story is a good story in the EU [given low rate + wages]. It's going to be for the parties around the table to determine allocating profits and their discussions. They can count on the ECB returning inflation to 2%. We hope that helps in their deliberation going forward.
The persistency of inflation has a lot to do with the unit labour cost mentioned earlier on. We know its going to be stick [but it will come down]. We know it will remain ahead in the months to come - we are heading into the Summer, all of that is going to go well - so that persistence is expected in the short run, and the remaining persistence is expected in 2024 until 2025 [unless risks were to materialise].
The indirect costs of energy & food will be expected to fade out.
We expect the resistance of inflation to gradually fade away. As much as it persists, we [the ECB] will persist.

Reporter: Has the risk of an inflation spiral increased since March [in reference to wages]? What is exactly a timely manner?
Lagarde: We are not seeing second-round effects, we are not seeing a wage-price spiral. The sooner we get inflation to 2%, the better. We have to be realistic and measured in the response that we give, but very determined in the delivery of those measures and persistent.

Reporter: Another reporter asks about wage-price spiral. On the one side you say wages are having a huge impact on inflation, on the other side you are saying there is no spiral. It's not clear. How did you come to that conclusion?
Lagarde: What I said was unit labour costs is having an impact, or rather causing, the revision of core inflation forecasts. You can have that without a wage-price spiral.

 

[sptrawler]

Introduce more labour into the equation, it reduces the requirement to increase wages, to attract or retain employees.

 

[over9k]

While also increasing the demand for housing.