"Policy makers and successful business leaders in contrast, must, at the end of the day, look forward and plan and when they do that, when they look forward, it is quite clear that we need to plan and prepare for what is to come (as shown in chart above and as is indicated by strong global growth). The RBA quite clearly realises this – the issue is whether the board will.
Those board members who don’t realise this would want to have much stronger arguments than fear of black swans, flood distorted data, the AUD and fiscal contraction though, if they want to argue against the RBA’s analysis. This isn’t a game for lightweights. The fact is, the unemployment rate is low and inflation is above target right now - and that’s before the boom hits. Inflation is expected to remain elevated for years. The risks of not dealing with this now, outweigh the risks associated with a modest over tightening, if that were indeed to be the end result of a June hike, which it must be said, is not likely. End of story. The case for a June rate hike, is as they say in logic, a ‘valid’ argument – i.e. one that must follow given the premises.
I’m not hopeful about the board though and, as an aside, should they fail in their duty then I think we might need a shake up. We are potentially entering a difficult time for policy – difficult decisions may need to be made in the national interest. Not that I think the retail sector is weak, tourism struggling or manufacturing collapsing mind you, as the anti-rate hike lobby would like us to believe. I also don’t think it will be weak after a few more rate hikes. At the end of the day if business is as weak as these people suggest, then maybe they should just cut their prices – retailers could start by passing on to consumers some of the benefits of a strong AUD, instead of price gouging. That would reduce inflation and the need for the RBA to hike rates. I’m not just talking about a PR exercise aimed at convincing people that that prices have been cut mind you. I’ talking about a completely new strategy - actually cutting prices.
Anyway, the point is, that unless retailers stop price gouging, the RBA may need to make difficult decisions, and we need people on the board who can make those decisions and not be blinded by the anti-rate hike lobby and the narrow interest of the industries they serve. Failure to deal with these issues in a timely manner now, could result in a very long and painful recession in the years ahead. So it’s pretty important that we nip inflation in the bud now, before it gets out of hand and when the costs of doing so are comparatively small. That is the smart thing to do. Why some business leaders, politicians and some short-sighted stock market and property types can’t see this is a mystery to me. These are people who should know better.
As yet, it is not clear whether those board members who have retail and other interests will be competent enough to see the medium to long term benefit - even to their own industries - of acting now. Instead they may overlook the medium term benefits and focus on the narrow and in the end, very short-term interests of their industry. I mean if we have an inflation induced recession in the years ahead because we failed to act early, it’s going to affect us all, and for a long time."
