Central Bank Views

RBA Reaffirmed Importance Of Housing And Labor Markets On Decision-Making, Defends The Trend Of Rising Part-Time Workers


The RBA minutes for the May meeting contained little news but reiterated policymakers' the importance of the property market and the labor market conditions in its policy decision. The stance to leave the monetary policy unchanged was obviously due to the perceived uncertain outlook in these two areas. As noted in the concluding statement in the minutes, 'the board continued to judge that developments in the labour and housing markets warranted careful monitoring'.

Policymakers began the discussion on domestic economic developments on inflation. The noted that the March quarter inflation data had 'generally increased confidence in the forecast that underlying inflation would pick up to around +2% by early 2018. Indeed, the upside surprise in the first quarter inflation data is encouraging. Headline CPI, at +2.1% y/y, reached the RBA's target for the first time since 2014. Core inflation also accelerated to 1.8% y/y. The members added that 'subdued growth in labour costs and strong competition in the retail sector had continued to have a dampening effect on aggregate inflation'. Policymakers remained confident that 'growth in domestic output was still expected to pick up to be a little above 3% by 1Q18, as 'the drag from declining mining investment waned and as resource exports continued to pick up'. However, they cautioned that "a fall in housing prices could also weigh on consumption growth'.

On the job market, the RBA shrugged off the recent rise of the unemployment rate to +5.9%, suggesting that it would 'decline gradually over the forecast period'. The minutes unveiled a detailed discussion of the increasing proportion of part-time workers. Policymakers judged that 'labour market deregulation, technological change and the shift towards a more service-based economy' are the key reasons for this phenomenon. They believed that 'the distinction between full-time and part-time work had become less important in assessing labour market conditions'.

On the housing market, RBA acknowledged that housing prices had been weak in Perth, where 'population growth had fallen significantly following the end of the mining investment boom'. They also noted that the 'large increase in supply in the inner-city Melbourne and Brisbane apartment markets had weighed on prices, particularly in the case of Brisbane'. Despite all these, the central bank suggested that 'growth in housing prices had remained brisk in Sydney and Melbourne, where population growth had been relatively strong'. On Monday, National Bureau of Statistics unveiled that lending for residential real estate fell -0.5% in March, following a revised -0.8% drop in the previous month. Home loans to investors as a proportion of total loans slipped -1.25 percentage points to 48%.