Interesting point from ANZ:
"The risk to inflation expectations. An important take away from yesterday’s CPI result was the sharp rise in the price of non-discretionary items, which rose 1.1% in Q2 (5.6% y/y). Our measure of inflation for frequently purchased items has also kicked up sharply in recent quarters and is now running at 5.0% y/y compared with 0.8% y/y growth in prices for infrequently purchased items. While some may argue this is a constraint on consumer spending (and so may ultimately prove disinflationary), we suspect the RBA will be more concerned about the upside risks to inflation that these price rises are generating via higher inflation expectations."
They also argue (correctly) that the economy is not as weak as the doomsayers claim:
"The economy is not as weak at the high-frequency indicators suggest. The RBA’s two preferred measures of the strength of the Australian economy – the unemployment rate and the NAB survey measure of business conditions – are both currently suggesting that the Australian economy is growing at around trend rates at the moment. Whilst some sectors (notably retail) are running below trend, this is being offset by strength in other sectors (eg. mining). But it is wrong to say that this economy is all about mining. Domestic service industries and agriculture are also experiencing favourable economic conditions. Household income growth is strong."
