Westpac make some interesting remarks on the latest TD-MI inflation gauge, which implies that a correction to it gives a much higher core inflation print for Q3 of 0.7% (or above the mid-point of the RBA's 2-3% target band). If Westpac prove correct, this also suggests that the Q3 drop in core inflation following two very high results in Q1 and Q2 was more noise that true pulse (assuming the Q3 number does not revise up when the ABS re-estimates it at the end of January). Here's hoping for a very low Q4 inflation number and more RBA rate cuts--or "Stevens put options" for the financial markets--if we can get them, because Australia's housing market is currently loving the improvement in affordability! Over to Westpac:
"The TD-MI Inflation Gauge rose 0.5%mth in December for an annual pace of 2.4%yr...The three month rise was just 0.4% to December pointing to a very modest rise in the ABS Q4 CPI. But our seasonal adjusted process suggests that softer inflation numbers are normal in the fourth quater and our seasonally adjusted 3mth pace of the Gauge lifted to 0.7% in December from 0.5% in November. Westpac is currently forecasting a 0.4%qtr rise in the Q4 CPI and a 0.6%qtr rise in the average of the core measures. We will be finalising our CPI forecasts later this week."
