The ever-reliable Rory Robertson:
“My guess remains that policy will be on-hold at 4.5% into 2011. Without another disappointing CPI report to lean on, the case for a start to “Phase 2” of the RBA’s tightening cycle is weak to say the least…
While a bit softer than many were expecting, today's modest rise in average consumer prices makes sense, given the lack of price pressures evident in business surveys and high-profile retailers’ latest updates. But little of that was new. Moreover, nominal unit labour costs had fallen in three of the past four quarters, to be down by almost 1%. All in all, the trend CPI had done well to increase by 3% over the year to Q1 without support from any broad-based cost pressures…
Before today, three of the previous four quarterly readings for the “trimmed mean” CPI were 0.8s (3-1/4% annualised), leading to a degree of pessimism about prospects for trend inflation to fall much - if at all - below 3%. But now two of the past three quarterly readings are 0.5s (a 2% annualised rate). Thus it now seems reasonable to guess that trend inflation will fall to the middle of the RBA’s 2-3% band, not just to the “upper half”…
“Phase 2” of the RBA’s tightening cycle will have to wait for convincing evidence that inflation pressures in Australia are intensifying. That seems unlikely to arrive before 2011.”
