My very erudite (albeit ideologically right of Attila-the-Hun) pal Ricardian Ambivalence, who has been awfully hawkish for some time now alongside yours truly, has momentarily shed a few predatory feathers in this extraordinarily creative post revisiting the RBA's monetary policy decision today. A must read. In brief, he posits the hypothesis that the greater-than-expected supply shock in Q1 may have artificially increased underlying inflation, and thus given the RBA a bum-steer on the speed of the Q1 inflation pulse. He reckons this may in turn have cast into doubt the RBA's conviction about its own inflation forecasts (I predicted this would happen immediately following the meeting today). This is a very big deal, if R.A. is right. If the RBA waits until August, and we do get a low Q2 CPI print, then Tim Toohey at Goldman Sachs--who is calling November--is going to look like a freekin genius (and he's already regarded as one of the best). It's hard to say whether R.A. has pinned this one down.
His idea is lent a fair amount of weight by both Alan Mitchell (AFR) and Terry McCrann (News Ltd) arguing this evening that July looks less likely, the recent weak data flow gives the Bank more time, and that it seems set to wait until after the Q2 CPI...How quickly events and sentiment seem to turn on a dime. If all of the above is broadly correct, one thing we can say with confidence is that the RBA is not going to be forward-looking or pre-emptive. On the contrary, the Bank is now data-dependent.
