Long slow march to zero (redux)
It's been quite a while since we've done a 'long slow march to zero' post (is this part XIX now? I've totally lost count!).
But it looks to be only a matter of time before the cash rate goes lower in this environment.
While both the government and opposition bicker about the race back to a Federal Budget surplus the economy has been starved of credit, and it all has all but completely stalled.
Inflation came in at precisely zero for the March 2019 quarter, despite some drought-driven increases in the price of veg.
More pertinently core annual inflation has seized up too, with the trimmed mean reading down to 1.60 per cent and the weighted median measure tracking at a remarkably low 1.24 per cent.
Although fuel was a drag on this quarter's figures it'll be hard to construct a credible argument that inflation is heading back to target on these numbers.
The narrative and forecasts on both growth and inflation have been rather rudely disrupted.
In fact, underlying inflation is now the lowest on record.
Tradables inflation in the economy was already low; but non-tradables is now slowing again too.
Whether rates are cut in May, or whether an easing bias is introduced in May with cuts potentially to follow, I'll leave that to the experts to observe.
Personally? I reckon after the most recent jobs figures again beat expectations there will be no cuts just yet and the central bank will hope for things to turn around.
Rental CPI lowest since 1993
A quick look at rents while we're here.
Rental price growth of 0.4 per cent was the lowest since Meat Loaf was #1 in September 1993.
In Perth the rental price index is now down 22 per cent since 2014 (although Darwin is looking much worse).
Indeed, in Darwin the economy appears to have sunk into outright deflation.
The wrap
There's a curious paradox here.
And that's with inflation only flat, real wages have received quite a nice little boost.
Mortgage rates have also been falling too for new borrowers.
From where I'm sitting I can hear a television where Bill Shorten is simultaneously arguing at a presser that the election is a referendum on the spiralling cost of living, and yet zero inflation is a "massive problem which shows the economy is going down and down and down."
Of course a zero increase in consumer prices actually is, factually speaking, an improvement in the cost of living, so he's talking codswallop.
Bizarre stuff, but as far as I could tell nobody seemed to call him out on the weird double-speak.
Unfortunately, the skilled job vacancies report for February was revised down to a nasty negative, and this was followed by more of the same in March.
With the government dithering, hiring set to slow, and the banks still making it ridiculously hard to get a loan, interest rates will probably have to fall in H2 2019.
