The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, October 24, 2011

Economists flagging downside risks to Wednesday's inflation data (will Koukoulas get his two rate cuts, but?)

From Westpac today:

"The final stage producer price index (PPI) rose 0.6% in Q2 which saw the annual pace ease from 3.4%yr to 2.7%yr. Upstream price pressures are also easing with a 0.1%qtr rise in both the Preliminary and Intermediate PPIs.

The big swing factor this quarter was the decline in building & construction costs (–0.2%qtr). The core measures were also subdued with a 0.2%qtr rise in core import prices (much less than the 3.3% fall in the AUD TWI) and a 0.2% rise in core domestic prices.

We take two components from the PPI as a guide for components in the CPI. The first is house construction prices which surprised with a fall of 0.3%qtr. The last time this series fell was in March 2009 (–0.5%qtr). The second is utilities prices which revealed the usual seasonal strength (8.2%qtr vs. –0.3%qtr in Q2). But what was surprising is that given all the anecdotes of rising utilities charges, the rise this quarter was less than the 8.9%qtr recorded in 2010Q3.

The two series suggest downside risk to our current CPI forecasts. However, the dwelling series in the CPI tends to have smaller movements than its counterpart in the PPI. And we are also cautious that the movement in retail utilities prices may be greater than at the wholesale level. And finally, there is an outside risk that retail margin rebuilding continued into Q3. That is why we have left our CPI forecasts unchanged at 0.6%qtr/3.5%yr headline and 0.6%qtr/2.6%yr for the average of the core measures. We do, however, note downside risks to these forecasts."