The RBA well and truly shot the growing flock of Australian inflation doves out the sky today, which was a surprise to almost everybody. The RBA's 12 gauge shottie--aka the Statement on Monetary Policy--got most of them, although I fear that there is a small minority still limping along out there. You can almost hear the soft, "brrrrr, brrrrr" as these resistant doves peck at their near-mortal wounds. And I am truly concerned that if they they don't change their feathers rather quickly, they will be gobbled up by the newly-engorged hawks that are circling above with immense intent for the first time in a long time.
It is important the Australia's central bank is ruthless with interest rates, since it cannot afford to make any mistakes with core inflation already running nearly 100 basis points above its 2.5% pa target. The RBA needs to shock and awe, and remind the community that there will be stern, unrelenting responses to rising unit labour costs and non-productivity based wage claims.
Frankly speaking, I was a little worried about our central bank for a while there. But today's Statement on Monetary Policy delivered in spades, demonstrating that even with two more rate hikes, a high currency, and oil prices acting as a crimp on global growth, Australia is going to have a major inflation challenge on its hands.
The RBA has one goal, and only one goal: price stability and keeping headline inflation within its target band. Don't believe the baloney about it having two objectives (the other purportedly being full employment). The RBA's credibility will rise and fall alongside its ability to keep inflation in check. Testing waters lie in wait...
