In response to today's 2.6% underlying inflation result for the 2011 year, my old sparring partner Stephen Koukoulas has tweeted:
"Mkt looking at 2.6% y/y underlying reading as a highish result - AUD up: This looks to be wrong interpretation"
On his new blog, Koukie prepared a media release before the CPI results as to what he thought should be reported. It seems he was forecasting a 2011 year result of 2.3% (versus the 2.6% we got) driven by a "stunningly low" Q4 result, and, further, that financial markets would then price-up a 100% probability of a 25bps rate cut in February (vs. the substantially scaled-back 68% probability right now). As I have said too many times to count, forecasting is a very tough gig that is almost impossible to get consistently right. Notwithstanding our sparring, I've always found Koukie to be a lovely guy. Here is the media release he prepared before the CPI...
WEDNESDAY 25 JANUARY 2012:
Today’s consumer price index confirmed that Australia’s inflation rate remained around its lowest level in a decade. In underlying terms, the CPI rose by 2.3% in the year to the December quarter to remain in the lower part of the target range of the RBA...
The low inflation rate has money markets pricing in further interest rate cuts in the near term. According to market pricing, the RBA is expected to cut the official cash rate by a further percentage point over the next 6 months with a 25 basis point cut priced into the market for next week’s meeting of the RBA Board...
The stunningly low inflation result is a further embarrassment for the Liberal Party, which had policy settings in place in 2006 and 2007 that spurred underlying inflation to a 15 year high of 5.0%.
