Newest Australian nationwide accounts information present no justification for additional rate of interest rises – William Mitchell – Trendy Financial Principle

I’m travelling quite a bit right now and so that is only a transient reflection on the response within the media to yesterday’s Nationwide Account launch from the Australian Bureau of Statistics. The response from the mainstream media has been somewhat incredulous with most commentators claiming in probably the most lurid phrases that the figures imply that the Reserve Financial institution of Australia can have no selection however to hike rates of interest once more at its subsequent assembly to, as one character put it “to shut the hole between provide and demand”. Nicely it ought to come as no shock that in my evaluation, the information that got here out yesterday supplies no foundation for an rate of interest enhance. And given the dynamics that the information is depicting, there isn’t any means an rate of interest enhance would do something to shut such a spot with out plunging the financial system into a significant recession. Any power in present expenditure goes exterior the home manufacturing system through imports – capital for information centres, EVs. Capability utilisation charges stay beneath 80 per cent. Unemployment is rising. Any worth pressures are coming from international occasions which might be insensitive to home rate of interest rises.

The info confirmed that the Australian financial system grew by 0.4 per cent within the June-quarter, a tick above the 0.3 per cent that was recorded for the March-quarter 2026. The annual progress charge, nonetheless, declined from 2.

The final 5 quarters appear like this:

On an annualised foundation (4 occasions present quarter) the expansion charge is 1.6 per cent, which isn’t sufficient to forestall the unemployment charge from rising.

By way of particular person elements of personal demand, which the RBA would say it’s targetting, family consumption expenditure progress is declining and the newest quarter was pushed by a really giant substitution impact within the motor automobiles as individuals swapped petrol vehicles for EVs.

These form of results masks the underlying development which is downwards and has been for the reason that center of final 12 months.

However given all these motor automobiles are coming from international producers, the family consumption progress was being serviced by Australian manufacturing, which makes claims that the demand is operating away from home provide capability somewhat arduous to justify, notably because the unemployment charge is rising.

Right here is the quarterly progress for the reason that March-quarter 2022:

The opposite essential remark is that somewhat important however ephemeral non-public enterprise funding in ‘information centre’ infrastructure drove progress within the current quarters however the June-quarter 2026 consequence confirmed that, in the interim no less than, that expenditure has peaked.

The ABS launch mentioned that:

Personal funding was flat this quarter and had no impression on GDP progress. Equipment and gear declined following file imports of automated information processing gear within the earlier quarter.

Actually, non-public enterprise funding fell -0.02 per cent after the surge of final quarter.

The underlying development for personal enterprise funding is downwards.

Furthermore, many of the expenditure on capital gear went exterior the nation through imports, which have boomed.

The exterior stability is in deficit, which implies that our commerce sector is in internet phrases subtracting from home demand.

Right here is the quarterly progress for the reason that March-quarter 2022:

Taken collectively a 0.4 per cent quarterly progress charge is barely matching inhabitants progress and the latter is the one cause there may be any progress in any respect.

GDP per capita progress was zero within the June-quarter 2026 after declining by 0.1 level the earlier quarter.

The opposite important piece of information from the Nationwide Accounts was that the GDP chain worth index (a measure of underlying non-public pressures) fell by 0.6 per cent within the June quarter indicating a deflationary transfer.

The ABS wrote:

Home worth progress mirrored rising enter prices weighing on most areas of the financial system as oil costs rose stemming from the battle within the Center East. Greater enter prices predominantly impacted power and gasoline intensive industries, together with Building, Mining, Manufacturing and Transport, Postal and Warehousing.

Query: Are any of those enter prices delicate to home rate of interest actions?

Reply: In no way in a direct means.

The one means they turn out to be much less essential within the home financial system is that if the financial system plunges right into a deep recession and general demand collapses.

That is the form of consequence that the RBA retains pushing in the direction of however occasions like which might be so damaging and take a few years to maneuver past.

In the meantime, the prosperity of tens of millions of employees is compromised and relying on the place they’re of their working lives destroyed endlessly.

So once I learn journalists writing:

Australia’s financial system grew by 2.1 per cent within the final monetary 12 months, cementing the percentages for an additional charge rise because the financial system proves extra resilient than the Reserve Financial institution expects.

The phrase contempt involves thoughts.

The journalist claimed that “GDP progress accelerated on a quarterly foundation from 0.3 per cent in March” – in any affordable evaluation, a 0.1 level rise within the progress charge will not be an acceleration however a modest uptick that’s inside the usual error vary.

He additionally parroted the RBA line {that a} GDP progress charge of two per cent every year was the financial system’s ‘pace restrict’ above which inflation accelerates and turns into harmful.

So a 2.1 per cent annual GDP progress charge would breach the RBA’s limits and drive an rate of interest rise.

There’s zero theoretical foundation for such a pace restrict.

There is no such thing as a historic empirical proof that claims that inflation accelerates when annual GDP progress exceeds 2 per cent.

Actually, for the reason that September-quarter 1959 (the beginning of the fashionable Nationwide Accounts information), the dual situation of a GDP progress above 2 per cent and an accelerating inflation charge has been skilled in 38 per cent of the 263 quarters.

And nearly all of these ‘constructive’ quarters, have been related to worth actions being pushed by transitory international (supply-side) occasions.

In different phrases, the so-called ‘pace restrict’ is a handy excuse for the RBA to extend charges when no justification within the fundamentals might be discovered.

Conclusion

I nonetheless can’t fathom why we’re shopping for the RBA line that the present worth pressures signify mixture expenditure operating quick and outstripping the home provide capability.

Any power in present expenditure goes exterior the home manufacturing system through imports – capital for information centres, EVs.

Capability utilisation charges stay beneath 80 per cent.

Unemployment is rising.

Any worth pressures are coming from international occasions which might be insensitive to home rate of interest rises.

That’s sufficient for right now!

(c) Copyright 2026 William Mitchell. All Rights Reserved.