The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Friday, May 6, 2011

CBA canvasses rate hike earlier than August

To quote:

"The SMP contains some significant changes to expectations for growth and inflation over the next few years:

**underlying inflation is expected to be running at 3% by late 2011 and remain at that rate for the next two years;

**headline inflation is expected to run well above the 2-3% target range over the balance of 2011; and

**aside from a natural disaster related pothole in the early part of 2011, the non-farm economy is expected to grow at better than trend rates over the forecast period.

These forecasts allow for the growth-depressing and inflation-restraining impact of a high Aussie dollar. And they are based on a technical assumption of a 50bpt rise in the cash rate over the forecast period. They also assume that households remain cautious indefinitely. This is a strong assumption relative to a labour market forecast that has employment growth as “solid” and the unemployment rate at 4¼% by end 2013.

The last time the RBA had forecasts showing inflation running at 3% or more was in February 2008. The cash rate was lifted by 25bpts at the time and a further 25bpts a month later.

This combination of forecasts and assumptions suggests to us that a rate rise was discussed at the May meeting. We had thought the key policy question was “what might bring a rate rise forward from our August call?”. But the question now is “what might prevent a rate rise from occurring earlier?”

An earlier move than our August call is likely if:

**the QI wage data (due 18 May) shows an acceleration;

**or if a trend decline in unemployment is evident (due 12 May);

**or if elevated capex plans are flowing into actual spending (ABS data due 26 May)."