When doves fly
For years the Reserve Bank of Australia has harboured an obsession with 'financial stability', keeping monetary policy relatively tight and in doing so missing the inflation target for half a decade.
In all fairness it might well have worked eventually, as the unemployment rate had been grinding lower before the coronavirus recession.
Many of us decried the unnecessary output gap for years, though of course the benefit of hindsight is always 20/20 vision.
In any case, the recession appears to have triggered a change of heart, and in turn a change of fortunes for the economy lies ahead.
Australia's huge stimulus package and successful containment of COVID-19 has led to a powerful rebound in the outlook, but the Reserve Bank's policy statement today remained dovish.
In fact, it has been clearly stated that interest rates will be going no higher until we have inflation sustainably back in the target 2 to 3 per cent range, which means a strong push for full employment is underway.
Boom lies ahead
A couple of other snippets of economic news today.
The commodity price index is up by 28 per cent over the past year (more if you use spot prices for the bulk commodities, with iron ore now accounting for nearly a third of the index after the annual re-weighting).
ANZ also reported that its job ads series have surged to the highest level since 2008.
And crucially, this has come at a time when there is no longer the pumping immigration to hold down wage price growth.
This may well lead to labour shortages in some sectors (to go with the timber and other materials shortages that are already in evidence).
Yet the RBA remained dovish in its statement, reiterating its commitment to the 3-year policy.
Source: RBA
There's a substantial uplift to Aussie household wealth lying ahead.
As I've said here previously, housing prices could logically be repriced by between a quarter and a third higher over the next few years, without remotely troubling repayment ratios.
Local stock indices aren't looking particularly expensive now either, given they've essentially gone nowhere since 2007 while the outlook for commodities appears to have brightened considerably.
And if the RBA can see this thing through then there's no apparent reason we can't see wage price growth bumping back up towards 3-4 per cent for the first time since the resources boom.
It's not hard to envision household wealth increasing to A$15 trillion over the next few years, meaning household wealth of more than $500,000 per capita...making Australia's households the wealthiest in the world.
