March 2019
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New Payments Insights from the Updated Retail Payments Statistics Collection
The Reserve Bank has significantly expanded the retail payments data that it publishes from 61 to around 300 series. This followed a project conducted in consultation with the industry to update the underlying statistical collection. The new data provide additional insights into Australians' payment behaviours, particularly in the context of the shift towards electronic methods of payment away from cash and cheques. This article discusses some of the new series being published by the Bank.
Developments in Banks' Funding Costs and Lending Rates
Banks' funding costs increased a little over 2018, driven by a rise in the cost of wholesale funding linked to money market rates, but with some offset from reductions in the cost of retail deposits. Most lenders passed the increase in funding costs through to their lending rates, including for mortgages. Nevertheless, funding costs and lending rates remain low by historical standards.
Updates to Australia's Financial Aggregates
The financial aggregates for Australia are important data compiled by the Reserve Bank that are used by policymakers to assess financial and economic activity of households and companies. From August 2019, the Reserve Bank will publish the financial aggregates using an improved framework based on a better data collection. This will enhance the quality of information available to policymakers and the wider community. This article gives an overview of the main changes.
Recent Trends in Banknote Counterfeiting
Law enforcement intervention has shut down several large counterfeiting operations and led to a decline in counterfeiting rates over the past couple of years. At the same time, the increased availability of low-cost, high-quality printing technology has meant that the quality of counterfeits has improved. This article discusses trends in banknote counterfeiting in Australia and the impact of counterfeiting on different stakeholders.
The Labour and Capital Shares of Income in Australia
In Australia, the share of total income paid to workers in wages and salaries (the ‘labour share’) rose over the 1960s and 1970s but has gradually declined since then. The corollary is that the share of income going to capital owners in profits (the ‘capital share’) has risen. The long-run increase in the capital share largely reflects higher returns accruing to owners of housing (primarily rents imputed to home owners, particularly before the 1990s) and financial institutions (since financial deregulation in the 1980s). Estimates of the capital share of the financial sector are affected by measurement issues, though structural factors, such as a high rate of investment in information technology, have reduced employment and increased capital in the sector.
Wealth and Consumption
Do households consume more when their wealth increases? Our research identifies a positive and stable relationship between household wealth and consumption, largely reflecting changes in spending on motor vehicles, durable goods and other discretionary spending. Increases in household wealth supported household spending between 2013 and 2017, when growth in disposable income was weak. Similarly, declines in household wealth typically weigh on consumption. However, a decline in household wealth is less likely to coincide with weaker consumption growth if it occurs at a time when the labour market is strong and household income growth is firm.
Firm-level Insights into Skills Shortages and Wages Growth
Despite increased reports of skills shortages from contacts in the RBA's regional and industry liaison program since 2016, national wages growth has picked up only a little and remains subdued. Information collected through the liaison program since the early 2000s suggests Australian firms use a range of practices in addition to, and sometimes before, increasing wages to address skills shortages. In the short run, this may constrain the effect of skills shortages on wages growth.
The International Trade in Services
Services are becoming increasingly traded globally and technological advances have led to the rise of more modern services such as communications, financial and intellectual property services. While advanced economies continue to account for the bulk of the demand and supply of services traded around the world, the emerging economies' share has been increasing. This article examines the changing global trends and compares them to Australia's experience with services trade, which has been shaped by China's growing demand.
Housing Policy and Economic Growth in China
Housing investment has contributed significantly to Chinese GDP growth in recent decades and, due to the steel-intensive nature of that investment, has also been an important driver of Australian exports of iron ore and metallurgical coal. Trends in Chinese residential investment have been strongly influenced by government policies. Since 2016, the Chinese Government has tightened policies, particularly towards ‘speculative’ housing purchases, to moderate property price inflation. It has simultaneously implemented targeted, incremental measures to improve longer-term housing supply. Even so, construction activity has weakened and prices have continued to rise rapidly. Maintaining this policy mix towards the sector is likely to prove challenging as downside risks to broader economic conditions mount.
Explainer: The Transmission of Monetary Policy
The transmission of monetary policy describes how changes made by the Reserve Bank to the cash rate – the ‘instrument’ of monetary policy – flow through to economic activity and inflation. This process is complex and there is a large degree of uncertainty about the timing and size of the impact on the economy. In simple terms, the transmission can be summarised in two stages. This explainer outlines these two stages and highlights some of the main channels through which monetary policy affects the Australian economy.
The graphs in the Bulletin were generated using Mathematica.
ISSN 1837-7211 (Online)