The Minutes of the March RBA Board meeting are consistent with the Governor’s decision statement – emphasising increased uncertainty due to the war; the policy of patience; scepticism about the pace of lift in wages growth; and the expectation that inflation will top out in 2022.
The Minutes are a more detailed record of the meeting than is released by the Bank in the form of the Governor’s decision statement immediately following the meeting on March 1. As such it is generally accepted that events that occur subsequent to the meeting should not influence the Minutes. As such, the content is somewhat superseded by the RBA Governor’s speech on March 9.
The key themes from the Governor’s decision statement were: “the war in Ukraine is a major source of uncertainty”; “the Board is prepared to be patient as it monitors how the various factors affecting inflation evolve”; “wages growth remains modest and it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target.”
At the time we made a key point that the Governor had broadened his definition of labour cost pressures from “aggregate wages”, which we interpreted as the Wage Price Index, to a broader “labour costs” measure.
In the Minutes we are given more insight into the challenge from the war in Ukraine. It had created additional uncertainty around the Board’s key forecast that inflation would pick up further before moderating as supply problems are resolved. The Minutes note: “However the war in Ukraine and the associated increase in energy prices had created additional uncertainty about the inflation outlook.”
Of course, the disruption to oil supplies from the war is yet another supply shock that adds to uncertainties but the Board’s central view is that this supply shock will also be resolved allowing inflation to ease back. One implication behind the emphasis on uncertainty may be that the easing back in inflation may take more time but there is no hint in either the Governor’s decision statement or the Minutes that the trigger to inflation from the war is expected to become embedded – a view that might raise the urgency of official action.
The Governor’s decision statement specifically referred to “labour costs” – a definite change in emphasis around wages (see discussion above).
However the Minutes revert back to “it was likely to be some time before aggregate wages growth would be at a rate consistent with inflation being sustainably at target”.
Conclusion
Since the Board meeting the Governor has been somewhat more predisposed to the prospect of rising rates than had been the case in earlier public appearances.
That predisposition does not come across in the Minutes. The themes around patience; inflation peaking in 2022; uncertainty around the war; modest wages growth and “some time” before wages growth is consistent with the inflation target; are all consistent with the Governor’s decision statement.
Indeed, the Governor’s choice of a wider definition of wage pressures in the decision statement seems to be wound back in the Minutes, arguably extending the timetable for rate hikes.
The big issue of whether the supply shocks from the war extend the timing of the peak in inflation and run the risk of embedding permanently higher inflationary expectations is not considered to be a prospect either in the Minutes or in the Governor’s original decision statement.
