From Barclays today:
Last year, the Australian Bureau of Statistics broadened the seasonal adjustment of the basket of goods and services that make up the CPI. Previously, about one-fifth of the basket was adjusted, now about two-thirds are altered. The pay-off in terms of reducing volatility appears minimal, as seasonal adjustment only marginally reduces the standard deviation of headline inflation.
Seasonal adjustment means that more volatile prices (such as petrol and health insurance) have more chance of being captured in measures of underlying inflation, such as the trimmed-mean and weighted-median CPIs. Regular seasonal adjustment has seen these series frequently revised higher, by about 0.1% per quarter. Upward revisions help explain why underlying inflation has hit the RBA’s 2.5% forecast sooner than it had expected. Accordingly, it seems best to assume that initial estimates are likely to underestimate underlying inflation and may be revised higher over time.
