Aussie under pressure as interest rates at record low, RBA wants to see wage rise

Monday, Jun 25 2018

The Reserve Bank of Australia’s Official Cash rate is still at 1.50%, a record low and the longest unchanged interest rate in the country’s history. No changes are fully-priced into rate futures markets until the end of 2019. No wonder, perhaps then, that the poor old Aussie Dollar should be struggling. The problem for both Asia Pacific economies is, of course inflation; the lack of it, to be specific. While neither country is performing especially badly, particularly on the employment front, pricing power remains stubbornly absent. Japanese consumer price inflation got up to 1.5% in February of this year. That was a near three-year high and the sight of it raised hopes that the BoJ’s 2% target might be within reach.

However, it has decelerated markedly since and stood at a mere 0.7% annualized. Not much to show for all that stimulus. Australia’s inflation predicament is not as severe, but it’s notable nonetheless. Annualized CPI was last seen rising at 1.9%. That may be only a whisker below the RBA’s 2-3% target band, but inflation has now been below that for most of the last four years. So, we have two central banks who just can’t seem to hit their inflation targets, with price expectations correspondingly low. This month, both have decided that this is not entirely their fault. In the past few weeks we have heard both the RBA and the BOJ plead with employers in their countries to raise wages. Both have said that they would like to see pay rises of 3% or more, to boost spending and perhaps get prices moving that way.

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