Towards the end of three hours of otherwise measured testimony before the House of Representatives economic committee on Friday, the Reserve Bank governor, Philip Lowe, burst into a lyrical defence of markets in Australia that will likely grate with many of the multitudes trying to get by.
“Capitalism works,” he said. “Sometimes we complain a lot in this country but we enjoy a quality of life and a standard of living that very few other people in the world enjoy.”
Australia, indeed, was among the “wealthiest, prosperous, equal” countries anywhere and “a fantastic place to live”, Lowe said.
Those might ring true for the third of the population who own property without a mortgage and even for the half of the borrowers who are at least a year in advance on their loan repayments. A third of mortgagors are two years ahead or more.
However, there are about one in 10 owner-occupiers who “have virtually no spare cashflow”, have little if any savings and consequently only “a limited ability to cut down on consumption”, the assistant governor Brad Jones told the committee.
Lowe’s term expires in mid-September unless the government grants him an extension and so every public appearance amounts to an audition for his role.
On this week’s performances – which included fronting Senate estimates on Wednesday – it is notable that the prime minister, Anthony Albanese, merely says Lowe is “doing his job” without gracing the comment with an adjective.
The discussion of buffers is instructive in another way. The RBA is keen for higher borrowing costs to take demand out of the economy and if a large chunk of the intended target is relatively sheltered by dint of a stock of savings or advanced debt repayments, it will have to hike higher to change behaviour.
Renters, meanwhile, wouldn’t have drawn much solace from this week, either. True, Jones did acknowledge that this group includes some “experiencing hardship because of the rapid increase in rents”.
Rents rose at a record 10.2% clip last year and were still increasing at 10.1% in January, CoreLogic tells Guardian Australia. Capital cities reported a 10.9% annual pace of rental growth last month, and with migration and overseas students returning in droves, tenants aren’t likely to see much relief soon.
For Lowe, though, “it’s not higher rates that are driving rents, it’s supply”. Good luck to renters using that line with landlords seeking to claw back some of their higher debt repayments.
If the predictions of the RBA cash rate peaking at 4.1% come to pass, mortgage repayments will have risen almost half since the rate rise began last May. (Source: @RateCity ) pic.twitter.com/JRC1f4aMGO
— @phannam@mastodon.green (@p_hannam) February 17, 2023
Meagre wage increases, meanwhile, are likely to foster more gripes among salary workers not quite convinced Australia is fantastic just now.
Next Wednesday the Australian Bureau of Statistics will release the December quarter wage price index. The closely watched gauge is likely to tick higher than the 3.1% annual increase in the September quarter, with CBA forecasting it to come in at 3.4%.
Such an outcome would be the highest since the final three months of 2012 but imply the gap between the WPI and headline consumer price index figure of 7.8% had widened to a record. A 4.4% reduction in real wages, if that is the result, would eclipse the record 4.2% gap set just three months earlier in the September quarter.
Lowe, though, made it clear that a quickening of wage growth would make the Reserve Bank more twitchy when it comes to lifting interest rates higher.
A “fair number” of businesses that the central banks speaks to are giving wage increases of 5% this year. Lowe said these were “quite substantial wage increases”, although far shy of inflation. (The ABS says prices of “non-discretionary” goods that presumably people can’t avoid buying rose by 8.4% annually in the December quarter.)
Lowe also indicated that, much like those cashed-up consumers, companies are not overly concerned yet about higher borrowing costs. Presumably, they think they can pass them on.
“What we hear from business is that the cost of funding is not a major issue,” he said. “When we talk to them, it is all about labour supply and getting workers with the right skills. That is the main constraint on them investing.”
Indeed, “an interest rate of 3.35% should not be an inhibitor to investment”, he said.
That measure may come as news to businesses struggling to get by, not least small business owners whose mortgages are the collateral supporting their own jobs.
In its federal budget submission, the Council of Small Business Organisations Australia offered a plaintive call for relief after enduring “significant challenges and financial hardships over the past few years due to the Covid-19 pandemic and subsequent economic impacts”.
“Small business owners are working extremely hard to rebuild and grow their business, while facing many ongoing challenges such as worker shortages, supply chain issues, high inflation, increased interest rates, reduced cashflow and increased debt burdens,” it says.
Just a little bit of slack from the RBA might make Australia that bit more “fantastic”.
• This story was corrected on Saturday 18 February 2023: a reference to mortgagees should have said mortgagors.
