Today the economic news is being set in a land down under. So let us follow the England cricket team and head to Australia. We can start with a rough morning for the Reserve Bank of Australia.
RBA Governor Michele Bullock has admitted inflation targets have eluded her economists, while Senators were left wondering when the Reserve’s economic “experiments” would end.
Ms Bullock told a Senate Estimates hearing on Wednesday the Reserve Bank of Australia had been more focussed on cultivating a steady unemployment rate than steadying inflation. ( Sky News Australia)
It is kind of her to make one of my economic themes look good. Also she must have felt under a lot of pressure as central bankers rarely tell the truth.
Even worse one of the central bankers own inflation derivatives was used back at her.
Senator Jane Hume added trimmed mean inflation – underlying inflation, calculated by lopping the highest and lowest price changes from the consumer price index – had been “greater than that target midpoint” for 16 quarters in a row.
Ms Bullock said, while the Reserve Bank did not target trimmed mean inflation, she accepted the bank had not succeeded in taming the headline rate long-term. ( Sky News Australia)
Then the heat was really ramped up.
Ms Hume asked if Ms Bullock was ready to admit her “experiment has been a failure”, as forecasts have inflation above the midpoint “until 2027”.
To which Governor Bullock responded with her version of the famois quote from Humpty-Dumpty.
Absolutely not,” she said.
“I think we’ve got a situation where we’ve got an unemployment rate of 4.3 per cent and we’ve got an inflation rate at 3.2 at the moment, admittedly and forecast to come within the band, so I think the strategy still is alive.
“So far, we’ve managed to keep inflation expectations anchored at around about two and a half per cent.
As you can see she does not like the actual inflation number so she has made up her own. In fact she couldn’t even get the actual inflation number correct as here is the Australian Bureau of Statistics.
The Consumer Price Index (CPI) inflation was 3.8 per cent in the 12 months to October 2025, up from 3.6 per cent in the 12 months to September 2025.
This is the traditional central banking response where they use Humpty-Dumpty’s word definition and use a made up number from their Ivory Tower or inflation expectations when the actual numbers make them look foolish. The problem is that she told the Australian parliamentarians this back on February 6th 2024.
Recent developments in inflation are encouraging.
Later she added this.
On Tuesday, we released our updated forecasts for the economy and inflation. These forecasts have inflation returning to within the top of the target range – 3 per cent – in 2025 and to reach the midpoint of the target range in 2026.
Instead inflation has moved higher to 3.8% and as she told us inflation expectations are still in line she has critiqued her own rhetoric.
Importantly, these forecasts are conditioned on the assumption that inflation expectations remain anchored around the midpoint of the target range.
In fact the Governor got herself into rather a pickle today
She said low unemployment had mean more of a priority than low inflation.
Again she told the truth which of course will contradict her past statements. Also this was a particular zinger.
The RBA was surprised by high inflation, she said.
You might think after the previous disaster in this area she would steer away from claims like this, but apparently not.
“The board is looking very hard at these recent numbers to determine the extent to which it’s temporary, or the extent to which it’s giving us a signal that there’s some more permanent inflation pressures in the economy.”
Australia’s Parliamentarians
Let me give them some credit as they genuinely challenged the RBA this morning. It would seem that they have got the message that the RBA is not doing very well.
The RBA has a cash rate target for annual inflation of 2% to 3%, over the last 80 quarters, annual inflation has only been within the target range on 26 occasions. ( Cameron Kusher)
In fact the RBA has been sending policy in the wrong direction and let me illustrate with this from the transcript from last month’s press conference.
Edward Boyd at SkyNews. Governor, you’ve got a technical assumption in the monetary decision statement of one more rate cut next year.
Which got this reply.
So, yes, we do have that technical assumption of one more rate cut, and if you take the forecasts at face value that would suggest that in 2027 we get back to 2.6, which is close-ish to 2.5, so on the one hand you could argue that that’s about where we want to be.
Not only have they cut interest-rates only last month she was promising “More,More,More.” Plus there was this gem which I have highlighted.
So at the moment our judgment is that the material missed on this occasion was at least partly temporary factors, so a number of things just randomly sort of increasing more quickly,
I suppose you could always try to describe an inflation rise like that if you are stupid enough.
More problems from the GDP numbers
Also today the Australian Bureau of Statistics told us this.
Nominal GDP rose 1.7%. The GDP implicit price deflator (IPD) rose 1.3%, reflecting a rise in the domestic final demand deflator (+0.8%) alongside a rise in the terms of trade (+0.3%).
We can start with nominal GDP targeting where Goldilock’s porridge is “just right” at 5% per annum. Well the porridge here is rather hot at around 7% if this quarter is repeated. Then we see that the inflation reading for this series is at 1.3% which means the inflation target would be achieved in only half the year if CPI matched it.
Money Supply
This is running hot as well. The broad money measure or M3 rose by 0.8% in September and 0.7% in October raising the annual rate to 7.1%. With inflation already above target this poses another warning of trouble ahead.
Comment
I am afraid that the RBA looks incompetent again. I did warn that inflation was going to be on the rise on the 26th of June last year.
The money supply is not showing that things are restrictive and seemed to be suggesting another push. I can update that now with the April figures which were 0.4% on the month raising the annual rate to 5.1%. So if we look ahead 18/24 months for inflation to be running at 2% we would need growth of 3% and the latter does not look likely as we recall Australia is in a GDP per capita recession and depression. So there is a clear risk for inflation two years ahead.
Remember the previous Governor was forced to apologise to parliament for its Forward Guidance failures which it has just repeated. Even worse it may have to apply the brakes as the economy is slowing.
Gross Domestic Product (GDP) rose 0.4% this quarter and by 2.1% since September 2024.
Of that a lot is government spending according to the RBA.
Ms Bullock said around half of all GDP growth came through government spending, ahead of the Australian Bureau of Statistics’ GDP figures due to be released on Wednesday.
So without it the individual experience would be shrinking.
GDP per capita was flat (0.0%) this quarter but increased 0.4% since September 2024.
