Always too hawkish, Wazza McKibbin is too hawkish again today.
Modelling by Australian National University economist Warwick McKibbin and KPMG chief economist Brendan Rynne, released separately on Monday, found Trump’s tariffs would cause the Australian dollar to depreciate, sparking a near-term resurgence in inflationary pressures and putting pressure on household budgets.
McKibbin, a former Reserve Bank board member, estimates inflation will increase by 0.1 percentage point this year relative to his baseline forecast, while Rynne predicts the tariff shock will push inflation up by 0.8 percentage points in the short term.
Treasury modelling requested by Treasurer Jim Chalmers and also released on Monday predicts the tariffs would increase inflation by 0.2 percentage points in 2025 compared to its baseline.
McKibbin agreed the inflationary pulse from the tariffs in Australia would be brief. By 2026, he estimates the tariffs will send modest disinflationary pressures through the local economy as global growth slowed and incomes fell.
While Trump’s tariffs were bad economic policy, McKibbin said they were not as damaging to the global economy as some people thought and the RBA did not need to dramatically slash interest rates.
So, how long does monetary policy take to work? 6-12 months, right? This is a nothing argument to slow monetary easing.
The fact is, displaced goods from everywhere are going to land in Australia, and those exporters will be focused a lot more on dumping inventory and gaining market share than they are on maintaining margins. They will absorb currency effects hand over fist.
If you look out the window instead of at an ivory tower economic model, it is obvious what is coming.
Deflation and lots of it.
