The Melbourne Cup day board meeting is traditionally favoured for rate moves because it comes just days after the release of the September quarter consumer price index which provides the first official reading on inflation each financial year.
This year the Bank was so confident the inflation rate would not trouble it that it moved rates ahead of the release, in early October. Inflation has been at or below 2 per cent all year, even after the carbon tax - well down on the rates of 3 per cent or more consistently recorded all last year.
The Bank believes its three rate cuts this year - in May, June and October - are yet to have their full effect. It believes it is too early to tell whether the economy needs another set of back-to-back cuts. It is also conscious that international economic conditions have improved since its October meeting rather than worsened as they had in the leadup to it.
Complicating the board’s deliberations are retail figures released Monday showing no real growth in spending since the carbon tax compensation payments delivered in June.
September quarter retail spending was up just 0.6 per cent on the June quarter, but all of the increase was accounted for by an 0.7 per cent lift in prices, meaning the volume of goods bought actually fell. Spending on food climbed 1.3 per cent, but food prices had climbed 1.6 per cent - led up by much higher prices for fruit and vegetables - allowing the Bureau of Statistics to conclude the volume of food bought slipped 0.3 per cent...
“Consumer demand and retail spending remain soft but are ticking over with no signs of further weakening,” said Westpac economist Matthew Hassan.
“Consumers are worried about losing their jobs in a softening labour market, income growth is slowing and people are keen to pay down debt. The response to recent rate cuts has been tepid.”
Purchases of food climbed just 3 per cent in the year to September, purchases of takeaway and restaurant food 3.5 per cent, and purchases of household goods 3.2 per cent. Department store sales climbed only 1.4 per cent - failing to keep pace with population growth. “Clothing, footwear and personal accessory retailing” was the only category identified by the Bureau in which spending grew strongly, climbing 7.7 per cent over the year after adjusting for inflation.
Stark differences have emerged between the states, with inflation-adjusted spending growing at annual rates of 8.9 and 4.6 per cent in the mining states of Western Australia and Queensland and at healthy rates of 5.8 and 5.2 per cent in NSW and the Australian Capital Territory. But spending in Victoria grew by only 1.1 per cent, suggesting spending per person fell. Spending in Tasmania went backwards 2.7 per cent.
The ANZ’s count of job advertisements slid a further 4.6 pc in October, its seventh consecutive monthly decline. Around 145,000 jobs per week were advertised in October, well down on the 170,000 per week a year before.
“We expect employment to fall when the official figures are released on Thursday and the unemployment rate to pause at 5.4 per cent on its upward trend,” said ANZ head of economic research Ivan Colhoun.
“Weaker job advertising and continuing job losses suggests continuing upward pressure on the unemployment rate. It will see the Reserve Bank cut rates further. We had been expecting a cut in December, but a move on Melbourne Cup day would not surprise.”
Westpac chief Gail Kelly called for further cuts to boost consumer and business confidence. She said a Melbourne Cup day cut was a “lineball call,” but otherwise there wopuld be one in “December or the latest February”.
Westpac's reported a 5 per cent jump in its cash profit to $6.6 billion for the year to September. It passed on just 0.18 points of the Reserve Bank’s most recent 0.25 percentage point cut and has the highest standard mortgage rate of the big four banks.
In today's Canberra Times, Sydney Morning Herald and Age
. October Why the RBA cut. The resources boom is about to peak
. September Situation no longer normal. The Reserve prepares to ease
. May Private banks are infuriating the RBA. Why it went big.