Monday, November 28, 2016

Win the election, buy some wheels. Seriously

Before the election that swept Tony Abbott to power in 2013, his incoming treasurer, Joe Hockey, forecast an explosion of spending as consumers opened up their wallets in celebration of a Coalition win.

As unlikely as it sounded, that's exactly what happened for some voters, even though the official figures didn't show it at the time.

The Reserve Bank has gone back and examined spending by postcode and used it to calculate what happened to spending by the supporters of each side of politics.

In the years after the 2013 election, Coalition supporters bought far more cars than did Labor supporters. Yet in the years after Labor took office in 2007, it was Labor voters that spent big on cars, an effect economists Christian Gillitzer and Nalini Prasad describe as far from trivial.

"Going from a hypothetical postcode with only Liberal/National voters to another postcode with only Labor voters is estimated to have increased per capita motor vehicle purchases by around 30 per cent four years after the 2007 election," they say in a research discussion paper released on Monday.

The purpose of the study was to try to find out whether the answers to questions in consumer confidence surveys reflect actual buying intentions. Those surveys invariably show that after each change of government, supporters of the party that won suddenly become more rather than less confident than supporters of the other side. If the surveys reflected actual buying intentions their purchases would shoot up relative to those of the other side, even though overall purchases hadn't changed.

That is what the study found: "evidence that self-reported spending intentions are indicative of actual consumption behaviour". And it has told us something else: we take politics seriously enough to vote with our wallets.

In The Age and Sydney Morning Herald

Sunday, November 20, 2016

The case for a basic income, no questions asked

What if the right to an income was as basic as the right to vote?

In Australia you don't get money unless you work, or can prove you've been trying to find work or are disabled or jump through some other sort of hoop. At 65 you get the pension.

In Alaska every citizen gets $US2000 a year, no questions asked. It's a dividend from royalties from oil extracted in the Arctic Circle. In Kenya a $30 million trial is about to give 6000 citizens a basic income for 12 years to find out what difference it makes. An earlier trial found it lowered their stress hormones, improved their psychological health and cut their spending on alcohol and tobacco. A trial in Uganda found those who got automatic payments invested more in education and starting up their own businesses. Four years on they earned 40 per cent more than those who hadn't.

That shouldn't be surprising. Many of us who start up businesses or enrol in courses rely on the income of a partner or parent to make it possible. Those denied that support can't do it.

Yet in Australia we seem to believe that if we simply hand out money, people won't work. Social Services Minister Christian Porter revealed on Friday that in the past year 3000 Newstart recipients had turned down offers of employment – that's 3000, out of roughly half a million. Even if we can accept that most people on benefits actually do want to work (either in paid employment or in equally valuable voluntary caring roles) many of us still seem to feel there's something morally wrong in delinking rewards from work.

Yet if we are honest, those of us with good jobs should probably admit that we have them largely through luck and the accident of where we were born. Much of our income isn't the result of our own efforts, it's a dividend from our society – a dividend we deny those without those jobs.

Switzerland just had a referendum on providing each of its adults with a basic income of $3450 per month. It failed. Finland, Canada and the Netherlands are about to run trials. In Australia, and New Zealand where the idea is being promoted heavily, the basic income might be $12,000 per year – not enough to live on, but a fallback that would enable hard-up jobseekers to turn down potentially dangerous or illegal jobs such as prostitution.

Yes, it would also go to the most well-off, Gina Rinehart and James Packer among them. But that's how it is with rights – they're universal. And we already hand those well-off Australians benefits such as tax-free thresholds. If a basic income replaced the tax-free threshold and was extended to all of us, Rinehart and Packer would be no better off and the payments wouldn't be too expensive.

The French poet Victor Hugo famously proclaimed there was "nothing more powerful than an idea whose time has come". As automation steadily eliminates even the kind of well-paid jobs most of us have always wanted, that time may be approaching.

In The Age and Sydney Morning Herald

Thursday, November 17, 2016

Wind can be fitted up for almost anything

Who better to ingratiate himself with Donald Trump? Joe Hockey is our man in Washington. Remember his thoughts about wind turbines, back in 2014 when he was Tony Abbott's treasurer?

"If I can be a little indulgent," he asked an extremely eager radio host. "I drive to Canberra to go to parliament and so on, I drive myself, and I must say I find those wind turbines around Lake George to be utterly offensive. I think they are just a blight on the landscape."

Trump thinks they're utterly offensive too.

"I don't know if you've ever been to Palm Springs, California; it looks like a junkyard," he told a US radio host a few days before the election.

"They have all these different companies and each one is made by a different group from, all from China and from Germany, by the way, not from here, and you look at all these windmills, half of them are broken, they're rusting and rotting. It looks like a poor man's version of Disneyland; it's the worst thing you've ever seen."

And worse still, wind power "kills all the birds".

"I don't know if you know that … thousands of birds are lying on the ground. And the eagle. You know, they put you in jail if you kill an eagle. And yet these windmills kill them by the hundreds."

And wind power sent South Australia into a blackout on the night of the big storms on September 28. You must have heard that. We've been told often enough.

Within minutes of the blackout, Twitter was alive with comments such as: "Bring back coal to SA! – this is bloody unacceptable to have a whole state sitting around in the dark. Aren't we a developed country?"

That one came from @rubensohn_gemma, a Sydney resident from Double Bay whose credo was "work hard to shop hard" and who, coincidentally, had signed up to Twitter as the storms hit. She wrote only about renewable energy on Twitter, as did dozens of new users who signed up that night, all of whom had a few other things in common: they used stock photos rather than real photos for headshots, they followed a Bangladeshi data entry specialist who earns a living "forum posting, content writing" and they followed the Twitter account of the eastern region of the Chamber of Minerals and Energy of Western Australia.

After Buzzfeed News asked the chamber about the accounts, all of them vanished. The chamber said suggestions that it was linked to their creation were "completely false".

Other Twitter accounts were real. Chris Uhlmann is the ABC's political editor. He suggested that night that the wind turbines had stopped turning because the wind was blowing too fast, a tweet that seems to have been since deleted.

The investigation by the Australian Energy Market Operator found that was not why the power went out. What did happen was that three of the four transmission lines bringing electricity into Adelaide from the north were cut after the pylons holding them up were blown over by the wind. Most of what was being generated by wind couldn't get through. Several of the generators shut down to protect themselves.

Energy specialist Hugh Saddler of Pitt&Sherry thinks that if the old coal-fired stations at Port Augusta had still been operating they too would have shut down for the same reason.

Without anything like as much electricity as it needed, Adelaide put a sudden strain on the connector from Victoria and it too shut down to protect itself.

AEMO says that all up only 20 megawatts of wind generation was lost because of excessive wind, barely enough to make a dent in the 883 megawatts of wind power being supplied at the time or the 1826 megawatts of power being supplied in total.

Prime Minister Malcolm Turnbull fed the hysteria by calling the blackout "a real wake-up call" for reliance on renewables. After at first refusing to blame renewables, his Energy Minister, Josh Frydenberg, fell into line, saying there was a need to re-examine the stability and reliability of the grid, with South Australia and other states hurtling towards ever-higher targets for the use of renewables.

Now he is saying it about Victoria, whose oldest and dirtiest coal-fired power station closes down in March because the French owners want to concentrate on renewables.

Hazelwood accounts for 20 per cent of Victoria's output. But it's hard to see how replacing that 20 per cent, predominantly with the output of underutilised NSW black coal-fired power stations, will make much difference. It'll push up wholesale prices because black coal is more expensive than highly polluting brown coal, but retail prices bear little relation to wholesale prices.

Pitt&Sherry point out that so far this century NSW and Victorian wholesale prices have climbed not at all, while in real terms retail prices have almost doubled. And by adding to supply, the growing number of wind turbines will at times take the edge off peak prices, meaning there might be little difference.

But don't expect to hear that from our leaders. Wind is offensive. It can be fitted up for almost anything.

In The Age and Sydney Morning Herald

Wednesday, November 16, 2016

Wage growth sinks amid record waits for pay rises

If you think it has been a long time since you got your last pay rise, you're right. The Bureau of Statistics says over the past four years the average wait has climbed from 12 months to 14 months – the longest on record.

And the increases themselves are getting smaller. The bureau says the average increase received by a worker who did get one has shrunk from 3.6 per cent to 2.3 per cent.

Combined, the longer wait and the smaller average increase pushed wage growth down to 1.9 per cent in the year to September, the first time annual wage growth has been below 2 per cent since the bureau began compiling the index in the late 1990s.

The only good news for someone hoping for higher pay is that almost everyone is in the same boat. For the first time since the index began, no occupation group has recorded wage growth of more than 2.5 per cent.

In a paper released with the wage price index, the bureau says the proportion of wage rises that are "large" (above 4 per cent) has fallen from 29 per cent to 7 per cent. And the average size of a "large" increase has dived from 7.5 per cent to 5.75 per cent.

"The declining share of large rises has been apparent across all industries," says the paper, prepared by Reserve Bank economist James Bishop. "Although the shift has been largest in mining and the industries exposed to mining."

"During the resources boom there was a high dispersion in wage growth across jobs, with especially strong growth in jobs exposed to mining and weaker growth in the many other parts of the economy. The reduction in the dispersion also reflects the presence of 'downward nominal wage rigidity' – namely, an unwillingness or inability on the part of firms to reduce nominal wages."

Over the three months to September, the wage price index grew just 0.4 per cent, the lowest growth on record. On a quarterly basis it has fallen behind the consumer price index, which climbed 0.7 per cent in the September quarter. Over the year to September, the CPI grew 1.3 per cent.

On Tuesday, Reserve Bank governor Philip Lowe told the Committee for the Economic Development of Australia: "We hope inflation will be a bit higher, and there are reasonable prospects that inflation will return to 2.5 per cent.

"You shouldn't be worried that inflation was going to get stuck at 1.5 per cent. I think that's very unlikely."

In The Age and Sydney Morning Herald

Wednesday, November 09, 2016

Donald Trump could be disastrous for the Australian economy

President Donald Trump will declare economic war on our biggest customer, wipe unprecedented amounts off global stock markets, usher in extraordinary financial instability, and risk turning the world's biggest economy into a basket case by pushing its national debt past 100 per cent of GDP.

And that's just what's known about his economic program. The Economist observed in the leadup to the election that while his policies were unusually short on detail, their direction "could not be clearer".

China takes 1 in every 3 shiploads of Australian exports, more than any nation has since Britain in the 1950s according to consultant Saul Eslake. Even small variations in what it wants sends our budget into conniptions.

Trump has promised from "day one" to designate China a "currency manipulator". That would allow him to whack a giant 45 per cent tariff on everything it tries to sell to the US, a prospect he has mentioned with relish. The US is China's biggest market, taking 18 per cent of everything it sells. China would have to retaliate (somehow), raising the prospect of a trade war that would damage both China and the US. War gaming by the respected Peterson Institute says it could push the US into recession by 2019. The last time that happened, during the global financial crisis, Australia avoided recession with help from China. We mightn't get it a second time.

In answer to questions after his first speech as Reserve Bank governor last month, Philip Lowe described the prospect of a Trump presidency as less than benign.

"We don't have a Trump plan," he added. "What we do is have a generic response plan to a whole range of shocks."

Financial markets lost $US2.5 trillion on Wednesday as it became apparent Trump was likely to win, just as they slid on each of his successes and surged on each of his setbacks throughout the campaign. US-Australian economist Justin Wolfers and his colleague Eric Zitzewitz have used those gyrations to put numbers to the Trump effect. They say a Trump win will knock 15 to 30 per cent off the value of the US stock market (during the global financial crisis it lost 50 per cent) and do much the same to other markets. US interest rates will climb 0.25 points.

It wasn't all bad for Australia on Wednesday. Shares in the gold miner Newcrest shot up 9.8 per cent.

Importantly Wolfers and  Zitzewitz say markets will become far more volatile, making it harder to plan, in what appears to be a first for a Republican win. They've analysed the market reaction to every presidential election going back to 1880 and found either a Republican "premium" or a "discount" whenever there was a significant move.

This is the first Republican discount, or as they call it, "Trump discount", a result all the more remarkable because Trump's policies are explicitly pro-business. Trump has promised to cut the US company tax rate from 35 per cent (a good deal higher than Australia's 30 per cent) to just 15 per cent.

But he'll spend big. The National Australia Bank and the US Tax Policy Centre say his promises will add $US7 trillion to US government debt over the first decade. His expansion of the military alone will add $US450 billion. Clinton's would have added just $US200 billion. The Economist describes her budget plans as "fiddly". It describes his as "absurd". The Committee for a Responsible Federal Budget says after 10 years US national debt will hit 105 per cent of GDP under Trump. Under Clinton, it would hit 86 per cent.

In an open letter, 77 US Nobel Prize winners have condemned Trump's platform, 20 of them winners of the Nobel for Economics. They are concerned about more than trade and more than recession. Trump says he will walk away from the hard-won consensus on the need to tackle climate change, describing global warming as a hoax "created by and for the Chinese". Australia's commitment to adjust its emission targets in line with those of its trading partners is about to become less onerous.

And he intends to build a wall along the Mexican border at a cost of $US5 to $US10 billion (funded by Mexico) in order to keep out illegal immigrants. Those already in the US would be deported (as happens here) rather than periodically made legal (as has happened in the US up until now).

On election eve the Economics Society and the Monash Business School polled 36 leading economists on whose presidency would be best for Australia. Thirty said Clinton, none said Trump.

One of the most stridently anti-Trump was 89-year old Max Corden, the doyen of Australian economists who is still working at Melbourne University. He said Trump would be a disaster for the world, "like another Hitler or Mussolini".

Unlike many who evoke Hitler, Corden has experience of him. He remembers the excitement when as a tiny boy in Germany he snuck out of his home to wave at Hitler's motorcade. He remembers his dad being interned in a concentration camp, and he remembers the incredible good fortune that allowed him to escape to Australia.

In The Age and Sydney Morning Herald

Sunday, November 06, 2016

And you thought the TPP was secret. The RCEP is even worse

There's another massive deal you've never heard of. The Trans-Pacific Partnership – negotiated in secret between Australia and 11 other nations over 10 years – appears to be dead.

It would have allowed US corporations to sue Australian governments in offshore tribunals, as they have long wanted to do, effectively trumping our own High Court. Donald Trump himself opposes it (bless him) as does Hillary Clinton, although she once helped to draw it up.

Whoever is elected president on Wednesday has pledged to abandon it.

So you would think we would be safe. Except that, in what The Wall Street Journal calls a long-shot, Barack Obama is going to attempt to push it through in the so-called lame duck weeks between Wednesday and the inauguration of his successor in January. Hundreds of economists and law professors have urged him not to, saying the provisions of the TPP would allow foreign investors – and foreign investors alone – to bypass "the basic procedures of the US justice system".

US corporations can't do it to us at the moment because the Howard government refused to include those provisions in the Australia-US Free Trade Agreement.

Right now, if US corporations want to sue us and don't find our court system to their liking, they have to pretend to be headquartered somewhere else, as the Philip Morris tobacco company did when it purported to move ownership of its Australian operations to Hong Kong in order to take advantage of the provisions of an obscure Australia-Hong Kong treaty after losing its case against our plain packaging laws in the High Court.

So far that case cost us more than $50 million to defend, and although we successfully fended off Philip Morris, we are yet to be awarded costs. It's a prospect that would terrify a smaller country.

Now there's a fresh move to have us face it time and time again, even if Obama fails to revive the Trans-Pacific Partnership. The TPP would have had 12 members. The lesser known RCEP – the Regional Comprehensive Economic Partnership – would have 16 members including China, accounting for one half of the world's population.

Leaked chapters of the draft agreement contain the same sort of investor-state dispute settlement procedures as the TPP. Although the Foreign Affairs website doesn't say so, our assistant trade minister Keith Pitt slipped into the Philippines on Friday to advance the negotiations.

Whereas in the TPP, Australia's delegations took community as well as business groups into its confidence, so far with the RCEP it's only been business groups. Patricia Ranald of the Fair Trade and Investment Network says that might be because, at least to start with, the US is excluded. It's a relatively open democracy. China, Indonesia, Malaysia and other RCEP members are not.

Just as with the TPP, our negotiators are releasing no texts and submitting none of what's proposed to cost-benefit analysis. There's every chance it will cut across rather than intermesh with the TPP and our other trade agreements. There's every chance we won't be told until it's too late.

In The Age and Sydney Morning Herald

Thursday, November 03, 2016

Why Turnbull should split the budget in two

Now that Turnbull's in charge we can all relax, right? We can certainly relax about politics. With the country well-run (and likely to be well-run for some time) there's less to worry about. But it would be a huge mistake not to worry at all.

In the aftermath of the mining boom and the real estate boom our living standards are set to flatline. GDP per head actually fell in the June quarter, for the third time since the financial crisis. Without something to pick up from the mining boom and the receding real estate boom, we will come to resemble Japan. For two decades now Japan's been happy enough and rich enough, but no richer. It's learnt to live with zero growth.

Also, >our budget keeps getting worse. Interest payments on debt will cost $11.6 billion this financial year, a sum the government has to borrow to meet because it is spending more than it earns. Unless we find an escape hatch, debt payments will one day cost as much as defence or education - especially when interest rates rise. Our budget will be so weighed down with debt payments there will be no easy way to get back to surplus.

And despite ultra-low interest rates and an army of soon to be freed construction workers we're not building the kind of things we'll need. Abbott boasted that he was overseeing the biggest infrastructure spend in Australian history. He wasn't. His last budget set aside almost nothing new for infrastructure. He wasn't able to actually spend big because he didn't want to push the budget further into deficit and risk Australia's credit rating (as well as his bragging rights for being tougher on the deficit than Labor).

Whatever he tried blew up in his face. When he talked about boosting productivity, unions saw it (often rightly) as an attack on conditions. When he brought in measures to bring down the deficit he was attacked (rightly) for going after the pension and family benefits rather than the tax breaks enjoyed by the wealthy.

And when he did try to spend something on infrastructure he was attacked (rightly) for his curious determination to spend it on roads even where their costs exceeded the likely benefits.

Turnbull has an opportunity to succeed where Abbott could not, and there's no time to lose.

The budget deficit has to be brought down; not necessarily straight away, but the mechanisms have to be put in place straight away so  they are locked in with a guaranteed improvement over time. Abbott's treasurer was on the right track. Hockey's first budget harnessed the power of compound indexation to restrain spending by more and more as each year passed. Pension and disability payments were to climb more slowly in line with prices rather than wages. The Senate opposed the change because it was seen to be unfair. But if he had created a credible sense of urgency about the budget and imposed the same sort of pain on high income superannuants and investors living off lightly taxed capital gains he might have succeeded.

Turnbull is in a position to create a credible sense of urgency. Unless he does, and unless he does it in the December budget update, the deficit will become harder and harder to fix.

He should do it by openly explaining the problem and saying he wants us all to do our bit, no matter how well off. He should wind back super tax concessions so that high earners no longer get the most (as a proportion of their income). And he should wind back the capital gains tax concession so that investment in housing is no longer particularly tax-preferred and negative gearing no longer particularly attractive.

And he should lift the goods and services tax. Victoria's premier Daniel Andrews has opened the door, saying that if a proposed increase is put to the 2016 election and approved, he won't stand in the way.

But fixing the budget won't allow Turnbull to give the economy a boost by investing in infrastructure. Or it wouldn't, without a revolution in the way the budget is put together.

Two weeks ago the government borrowed $4 billion for 3.345 per cent. What was unusual was that that the loan stretched out to 2039 - almost a quarter of a century. Until recently the government had only borrowed for 10 years. It's now tested the market and found that it is able to lock-in extraordinarily low rates for a generation. That's long enough to be able to safely fund the removal of level crossings or the Melbourne Metro, knowing that payments won't rise.

Turnbull would need to be sure that whatever he funded was the best possible value for money. That would mean listening to Infrastructure Australia, something Abbott didn't do when he poured billions into Melbourne's East West Link.

And Turnbull would need to change the very nature of the budget, starting in December. In modern times all spending and income has been lumped together.

Turnbull could separate "recurrent" spending and the income needed to fund it, from "capital" spending and  the borrowing used to fund it. That way, he could borrow big for demonstrably worthwhile projects while at the same time tightening the recurrent budget.

The ratings agencies are likely to buy it. Labor would too, if it had any sense. Turnbull would be treating us like adults and getting us out of a self-imposed bind.

In The Age and Sydney Morning Herald

Productivity Commission: how big data could work for us

What if we were on the cusp of one of the biggest ever advances in productivity and we didn't recognise it?

That's how it must have been for Alexander Fleming with the discovery of penicillin, for university technicians with the development of the internet, and for Bill Clinton, who with the stroke of a pen in the year 2000, made highly accurate military global positioning satellites available for everyone to use for free.

Peter Harris believes we are on the cusp of another transformation about as big – one only made possible by the development of the internet and all the things that surround it.

It's the exploitation of data. On one estimate we are now generating as much digital data every two days (five exabytes) as we generated in an entire year at the start of the 2000s.

Some of it is cat videos. Much of it mundane. But an awful lot is useful, and his best guess is that only 5 per cent of the useful stuff is being used, a figure that puts us way behind the countries we usually like to compare ourselves to, especially Britain and New Zealand.

We are behind partly for privacy reasons, partly because potential users don't know what data government agencies hold, and partly because the machines that hold it often can't talk to each other, even within the same hospitals.

It is an outrage that sick patients still have to act as information conduits between healthcare providers (10 to 25 per cent of the medical tests ordered are thought to be duplicates) and a disgrace that 60 years after the Thalidomide tragedy we still don't link prescription data to hospitalisation records to get insights into the side effects of drugs.

Research that could have saved the lives of Indigenous women was delayed five years while the researchers waited for ethics approval to see cervical cancer screening data; researchers wanting to study the link between vaccination and admission to hospital have had to wait eight years and counting.

Harris runs the Productivity Commission. It is a measure of his belief in the importance of the data inquiry commissioned by the Turnbull government that he decided to chair it himself and personally briefed journalists on the contents of his draft report on Wednesday.

His first recommendation is that all government-funded entities create easy-to-access registers of everything they've got. He wants them published by October 2017. If anyone wants a machine-readable copy of something on a register, they should be able to get it for free or for marginal cost, unless there are powerful reasons for holding it back.

Given how much personal data so many of us willingly or carelessly give away every day, he isn't particularly concerned about the privacy risks of releasing de-identified personal data (and allowing it to be linked to other data, as the Bureau of Statistics wants to do with the census), saying the risks are "likely very small". Where there's a clear public interest, he wants researchers to be given access to private information in secure rooms.

Right now they are often required to destroy datasets they create in medical and other research, a practice he says is akin to "book burning". He would require them to keep it.

Really important information would be curated in "national interest datasets", overseen by a national data custodian who would report to the parliament.

But that's just half of it. Right now, in spite of a widespread belief to the contrary, you and I don't have access to our own data.

If I ask my music streaming service for details of my listening habits, or my search engine for details of my search history, or my insurer for details of my claiming history, or my supermarket for details of my shopping history, or my electricity supplier for details of my usage history, they are perfectly entitled to refuse to hand them over. I might want to take them to a competitor.

Harris wants to enshrine in law my right to take them to a competitor. Even better, he wants my providers to hand them to the competitors or brokers I select at my direction. I probably wouldn't be able to make much sense of a machine-readable account of my electricity use, but a competitor would.

Suddenly, competition could really work. And it would cost almost nothing. There would be no privacy concerns because it could be released only at my direction. Harris would also give me the right to request edits or corrections to the data firms have on me, to be informed about their intentions to sell or pass it on, to be able to order them to stop collecting it (at the risk of losing the service) and to appeal automated decisions that deny me services or charge me more on the basis of it.

He is talking about a revolution. It's a revolution we ought to embrace and direct, rather than sit back and watch.

In The Age and Sydney Morning Herald

Tuesday, November 01, 2016

Steady at 1.5%: Reserve thinks it won't need to cut again

Don't bet on another interest rate cut.

Behind the typically bland language used by Reserve Bank governor Philip Lowe to explain Tuesday's decision to keep the cash rate on hold ("the board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time") lies a belief that things are about to pick up.

That's what he'll forecast in his first quarterly statement to be released on Friday, and what his predecessor Glenn Stevens forecast in his final quarterly statement released in August.

Developments since August have strengthened Lowe's confidence.

After sliding since 2013, the underlying measures of inflation have been steady at an annual rate of about 1.5 per cent for three quarters. After sliding since 2011, private sector wage growth has been broadly steady for four quarters.

Commodity prices are no longer sliding. They've been climbing since May, and they climbed another 9.5 per cent in October.

While the RBA doesn't think they'll continue to climb for too much longer (some of the recent increases in the contracted prices of coking coal have been too good to be true and dependent on temporary conditions in China), it doesn't expect commodity prices to fall back to where they were at the time of the May budget. They are not likely to depress wages and prices as they once did.

Mining investment has slid so far the RBA believes it's about to stop.

When that happens, it'll no longer be depressing employment, and the employment figures themselves aren't bad, even if part-time jobs are replacing full-time jobs. The bank believes having a job - any sort of job - is a lot better than not having one at all.

And it has received encouraging news from the retailers it talks to as part of its business liaison program. They say they are beginning to claw back pricing power.

After squeezing their margins in food, alcohol, clothing and luxury goods for ever so long, they are starting to feel they can charge a bit more.

If things continue like this, inflation will recover all by itself and the economy will grow at a healthy pace of around, then above, 3 per cent.

Lowe can leave the cash rate at 1.5 per cent. Things might change, they often do. But that's his central case.

In The Age and Sydney Morning Herald