It is kind of the Reserve Bank of Australia to make me look so good

by Shaun Richards

Today we have the opportunity to take a look at what is from our perspective a land down under. This morning its central bank has been in the news but before we get to that I would like to go back to yesterday. This is because if you are a commodity exporter then the war in Ukraine has been good for business.

Australia’s government forecaster said in its latest Resources and Energy Quarterly report, released on Monday, that earnings from commodity exports would rise to a record A$424.9 billion ($318 billion) for the fiscal year to June 30, 2022. ( Reuters )

For those of you wondering how much higher?

This is up a full third from earnings in 2020-21, and also up nearly A$50 billion since the December quarter report.

So we have a counterpoint to the general view that the price changes are contractionary as commodity exporters are rubbing their hands and no doubt wondering what to buy with their windfall? Also in a familiar theme the official forecasts are already behind the times.

But the price assumption used for iron ore for the 2021-22 year is $118 a tonne. That is likely to prove on the low side, given the spot price is now $160.01, and has only been below the assumed average price for about 12 weeks of the nine months so far in the current fiscal year.

So we see that there will be a likely Iron Ore windfall and that is before we get to the commodities that the Black Eyed Peas would describe as “Boom boom boom, boom boom”

Australia’s LNG exports are forecast to earn A$70 billion in 2021-22, more than double the A$32 billion for the previous fiscal year, even though volumes are expected to rise modestly to 82 million tonnes from 77 million.

Again that looks set to be an understatement as LNG is sold under longer-term contracts which have yet to catch up with what is taking place now. With any change in energy policy being for the long-term and in the case of nuclear at least a decade it seems LNG has a bright future.

Then there is this.

Earnings from metallurgical coal, also known as coking coal, are forecast to almost triple to A$65 billion in 2021-22 as the expected price for the year jumps to $348 a tonne from $123 in 2020-21.

I would like to briefly return to yesterday’s which was how the establishment manipulates views with forecasts even the most incompetent would be unlikely to produce and simply state this was a recent as the 17th of December.

At #COP26 we saw increased ambition on energy #ClimateAction, and the end of coal power is now in sight. In the new year we want to see further progress made 👇 #TogetherForOurPlanet

Meanwhile back in the real world.

Nonetheless, thermal coal prices remain well above the Australian government’s forecast of $193 a tonne for the 2021-22 year. The forecast level would already result in export earnings of A$45 billion, nearly three times the A$17 billion recorded for the prior year.

I could go through the other exports such as aluminium,nickel and copper but for our purposes today we have quite a commodity boom for Australia particularly eastern Australia around Perth. Also for consumers if we switch to them there are clear inflation issues here.

Policy Statement

One might think from this that the only real question was how much will interest-rates be raised?

The Australian economy remains resilient and spending is picking up following the Omicron setback. Household and business balance sheets are in generally good shape, an upswing in business investment is underway and there is a large pipeline of construction work to be completed. Macroeconomic policy settings also remain supportive of growth and national income is being boosted by higher commodity prices. At the same time, rising prices are putting pressure on household budgets and the floods are causing hardship for many communities.

So let us look at the response.

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At its meeting today, the Board decided to maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances at zero per cent.

This is their response to an economy that is according to them very strong.

The strength of the Australian economy is evident in the labour market, with the unemployment rate falling further to 4 per cent in February…..The RBA’s central forecast is for the unemployment rate to fall to below 4 per cent this year and to remain below 4 per cent next year.

As a counterpoint this is below what was often considered to be full employment in the past. For those wondering why 0% is not full employment it is because there sre always job changes which are picked up as unemployment or if you prefer frictional unemployment.


There are several ways of looking at this but let us start with the RBA view.

Inflation has increased in Australia, but it remains lower than in many other countries; in underlying terms, inflation is 2.6 per cent and in headline terms it is 3.5 per cent.

As you can see they are still trying to get away with the underlying inflation distraction ignoring the fact that food and energy are the drivers right now. This is at least partly because it is within their 2-3% target whereas what people actually pay is not.

So it is above target and they expect this.

Higher prices for petrol and other commodities will result in a further lift in inflation over coming quarters, with an updated set of forecasts to be published in May.

You might think that May is a bit late. By contrast has chosen to crack on.

Households in most states face higher electricity bills within months after wholesale energy prices soared in the first three months of 2022 amid near record prices for coal.

Dylan McConnell, research fellow at the University of Melbourne’s climate and energy college, said all states bar South Australia recorded a rise in wholesale prices of more than 100 per cent compared to levels recorded one year earlier.

This is especially material because whilst we are leaving winter it is on its way in Australia. There is also an echo of the state of play in France as price changes are being dictated to by the election calendar although this time not by political diktat.

The increased wholesale energy prices will soon flow through to Australian households, but it is not expected before the federal election in May, a boost to the prime minister who can ill-afford soaring electricity bills amid mounting public anger over costs of living.

Back to the RBA it is seeing wage rises too.

Wages growth has picked up, but, at the aggregate level, is only around the relatively low rates prevailing before the pandemic. There are, however, some areas where larger wage increases are occurring. Given the tightness of the labour market, a further pick-up in aggregate wages growth and broader measures of labour costs is in prospect.


It is kind of the RBA to make me look so good. I have warned for some time that the central bankers will “look through” any inflation for as long as they can and dither in any policy response. It could not be clear-cut as it has one of the best performing economies right now via its fortune with commodity resources combined with inflation above target and expected to rise. I am not sure there is a clearer example of when a central bank should raise interest-rates.

Next comes the issue of timing which I have raised so often.Because of the leads and lags in the way an economy responds to an interest-rate rise then the logical move is to act ahead of events. Meanwhile.

The Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates.

Perhaps it is waiting for house prices to rise.

The weighted average of the eight capital cities Residential Property Price Index:

  • rose 4.7% this quarter.
  • rose 23.7% over the last twelve months.

The total value of residential dwellings in Australia rose $512.6b to $9,901.6b this quarter, and the mean price of residential dwellings rose $44,000 to $920,100.


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