Most economists were expecting a very weak core inflation result for the September quarter. Instead, the weighted median printed at 0.8%, the trimmed mean came in at 0.7%, and the CPI ex volatile items was a very high 1.3%. Carbon effects were arguably much lower than the RBA and Treasury were anticipating, although we will never really know.
To make matters worse, the second quarter trimmed mean and weighted median revised up to 0.6% and 0.7%, respectively. In year-ended terms, the weighted median and trimmed mean, even with the new CPI method (including new seasonal adjustments and expenditure class weights) have now been revised up to 2.6% and 2.4%, respectively. Did somebody say Australia had really low underlying inflation? If they did, they were wrong.
Notwithstanding the above, and a recent slump in market pricing for a November rate cut from a confident 85% to a coin toss, Westpac and UBS have retained their cut call alongside 18 other economists polled by Bloomberg on Friday. I note that many economists changed their October call from no move to a cut after a clear signal from media commentators in early September.
Following the upside inflation surprise, ANZ, Barclays, Citigroup, TDS, Capital Economics, Goldman Sachs, and JP Morgan are now are predicting no move in November. This makes sense to me given the RBA has already pre-emptively cut 100 basis points since May, partly on the basis of the questionable supposition that core inflation in Australia was going to be very benign.
We now have a large amount of monetary stimulus just starting to work its way through the economy with core inflation over the last six months having been officially expanding in the top half of the RBA's target band. As I've predicted several times here before, the rebound in core inflation has been correlated with a bounce back in tradeables inflation as the Aussie dollar has stopped appreciating.
What stimulus, some might say? Last week UBank dropped their 3-year fixed-rate home loan to just 5.13% pa. UBank's one year fixed rate is merely 5.03%. CBA has slashed their 3 year rate to a 22 year low of 5.39%.
Savings rates are also falling through the floor. UBank's bonus rate savings product dropped from 5.46% to 5.16% last week. And note this is tricky: you must have less than $200k in the account, and must deposit $200 extra cash every month, otherwise your rate falls to 4.46% pa.
Before the October rate cut, the RBA reported that the average bank deposit rate across all products was 3.7%. I would hazard a guess the average rate is around 3.4% today.
I also note, with interest, the very firm auction clearance rates this weekend despite the big increase in the volume of sales held (see here).
