ABC finance guru Alan Kohler reveals why Reserve Bank of Australia should stop hiking rates

The ABC’s seasoned financial expert Alan Kohler is begging the Reserve Bank to stop making economically damaging rate hikes, pointing out that inflation was flat in May.

While the consumer price index rose 5.6 percent over the year, the monthly measure showed a zero increase in headline inflation.

From January to May, the monthly average was 0.24 percent, based on seasonally adjusted figures from the Australian Bureau of Statistics.

This included a 0.2 percent drop in January, a 0.6 percent increase in February, a 0.5 percent increase in March and a 0.3 percent increase in April.

On an annual basis, inflation for the first five months of 2023 came in at 2.88 percent – a level that is within the Reserve Bank of Australia’s target of 2 to 3 percent.

Kohler said this meant the RBA would have to stop raising rates, noting that monthly increases in CPI had slowed since November’s peak of 1.1 percent.

“So memo the Reserve Bank: Australia’s latest inflation is zero,” he said on ABC News.

He later tweeted that the rate hikes should stop in capital letters.

“The RBA needs to stop raising rates,” he said.

Despite indications that inflation will ease in 2023, the RBA raised rates in June for the 12th time since May 2022 to an 11-year high of 4.1 percent.

The Commonwealth Bank, Australia’s largest lender, now expects a rate break next week before resuming hikes in August.

Senior economist Belinda Allen said lower inflation in May on July 4 would save borrowers some pain.

“The lower-than-expected monthly CPI pressure for May has, in our view, tipped the balance of risk towards an on-hold decision in July,” she said.

But most economists generally expect the Reserve Bank to raise interest rates again by 0.25 percentage point to 4.35 percent on Tuesday, even as borrowers have already weathered the worst pace of monetary tightening since 1989.

That’s because the RBA expects annual inflation to remain above three percent through June 2025.

Monthly inflation data, including volatile items, showed dairy prices fell 0.2 percent in May, though they rose 15.1 percent over the year.

The cost of clothes or clothing fell by 3.2 percent in May and by 0.6 percent annually.

Kohler said this meant the RBA would have to stop raising rates, noting that monthly increases in CPI had slowed since November’s peak of 1.1 percent

Prices for holiday travel and accommodation fell by 11.3 percent in May, but rose by 7.3 percent over the year.

Gasoline prices fell 6.7 percent in May and were down 8 percent year-on-year.

With volatile items such as holiday travel removed, a general underlying inflation measure showed an annual increase of 6.4 percent.

A seasonal adjustment brought that back to 5.8 percent for an equal monthly result.

But without any seasonal adjustment or weighting to remove volatile items, the year-on-year pace fell to 5.6 percent, while the monthly measure actually fell minus 0.4 percent in May.

“Without the seasonal adjustment, hocus-pocus that the ABS wizards do, the original consumer price index actually fell in May,” Kohler said.

Treasury expects economic growth to slow to 1.5 percent in 2023-2024 as a result of interest rate hikes, a sharp drop from 3.25 percent in 2022-23.

AMP has warned that any rate hike could trigger a recession, repeating what happened in 1991 after the RBA cash rate hit 18 percent in 1989.

But treasurer Jim Chalmers on Wednesday downplayed the risk of a technical recession from the rate hikes.

“The Treasury and Reserve Bank forecasts are for continued growth in the Australian economy,” he said in Darwin.

“We’ve been outspoken with people for some time now and said we expect the Australian economy to slow significantly, as an inevitable result of interest rates that started rising before the election, combined with very difficult global conditions.”