Food holds up retail
Retail turnover increased by a slower 0.6 per cent in August, according to preliminary estimates.
The monthly increase was mainly driven by food sales and food industries, including cafes, restaurants, and takeaways.
Non-food retail was mixed, however, and contributed very little to monthly growth.
We'll have to wait and see how much of the increase was due to food prices, rather than sales volumes.
Policy tightening
Not sure this is what will play out, but given the very significant lags in play related to monetary tightening, I reckon there's a decent case for slowing the pace of interest rate increases from here to 25 basis points per month (with an aggressive stance stretching out into the future if needed).
A lot is being made of the movement in the Aussie dollar against the US dollar. But that's only one currency, and analysis by Westpac shows that a 10 per cent decline in the currency (TWI) doesn't have as a big an impact on inflation as you might think (through food, fuel, clothing and footwear, international travel etc.).
Unlike the US we don't even have strong wages growth in Australia, let alone the risk of a wage price spiral.
In fact wages growth at the last count was fiarly limping along at 2.6 per cent, while average ordinary time earnings increased by only a measly 1.9 per cent over the year to May 2022.
Also unlike the US, most Aussie borrowers are on variable rate mortgages (or in some cases short-term fixed rates) so the transmission mechanism of monetary policy is very different here.
Net overseas migration into Australia recently hit a record quarterly high according to the latest available population statistics, and the lifting of the permanent migration cap to 195,000 in tandem with the return of hundreds of thousands of temporary visa holders will hugely increase the labour supply over the next year, putting more downwards pressure on wages growth.
So many of the forward-looking indicators in the US (freight costs, crude oil, lumber contracts, other commodities, rents, money supply etc.) are pointing to disinflationary momentum ahead, but having been somewhat humiliated by the spike in inflation the Federal Reserve is continuing on its mission to crush demand for the time being.
It's increasingly looking like a potentially serious policy error given the brewing housing market shitstorm over there...so hopefully the same mistakes won't be repeated in Australia.
Borrowers in Australia are also currently being assessed with a historically high 300 basis lending assessment points buffer, which is not remotely helping with the chronic pressures in the rental market.
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For what it's worth, Westpac takes the view that the Reserve Bank will hike by 50 basis points next week to 2.85 per cent, taking the cash rate target above the assumed "neutral" rate of 2.50 per cent, meaning that the slowdown in the pace of hikes will instead follow from the November meeting.
