A lack of data on how consumers are responding to monetary policy could lead the Reserve Bank to raise rates into a recession. And what if that's difficult to escape? It's a critical economic question right now, writes David Taylor.
Unfortunately for the RBA and everyone else a recession is really the only thing that has a chance to lower inflation this high. Everyone talks about the RBA having only one hammer, but in reality it’s two: a hammer, and a sledgehammer.
Inflation looks entrenched. There is such a massive supply of money sloshing around the economy, and the cash rates effect spending so unequally, no amount of gentle easing is going to fix the issue. Nor will wages increasing: our labor market has been depressed for decades, you don’t unscramble that egg overnight
No I suspect the RBA has known all along the only thing it can really do is turn the economy on and off again. Whether it’s from external recessions brining us down or a homegrown one, it will happen. And it’s necessary to trigger the kind of large scale pivot we need from price gouging to cost cutting again
Unfortunately for the RBA and everyone else a recession is really the only thing that has a chance to lower inflation this high. Everyone talks about the RBA having only one hammer, but in reality it’s two: a hammer, and a sledgehammer.
Inflation looks entrenched. There is such a massive supply of money sloshing around the economy, and the cash rates effect spending so unequally, no amount of gentle easing is going to fix the issue. Nor will wages increasing: our labor market has been depressed for decades, you don’t unscramble that egg overnight
No I suspect the RBA has known all along the only thing it can really do is turn the economy on and off again. Whether it’s from external recessions brining us down or a homegrown one, it will happen. And it’s necessary to trigger the kind of large scale pivot we need from price gouging to cost cutting again