Pretty interesting results from the TD-MI monthly inflation gauge released this morning, which Steve Koukoulas had a hand in formulating
(update: Kouk has given his own independent assessment of the numbers, which is helpful here). I am frankly not 100% sure what to make of it, but the numbers taken in isolation show a relatively clear trend. The first chart below illustrates the headline and trimmed mean (core) monthly inflation results on a quarterly basis. The second chart shows the tradeables (ie, international goods and services) in red and non-tradeables sub-series in grey. This also reaffirms the points I made last week about the downshift in Aussie inflation being very much an exchange rate affair. Observe how the red bars have swung positive since February having been negative in the preceding months, which appears to imply that the inflationary benefits of the currency appreciation are fading away...
One other point: on the 24th of January the RBA Deputy Governor, Phil Lowe, forecast--yes, he should have adhered by Glenn Stevens' first rule of forecasting--that Australia's unemployment rate would rise to 5.5% in 2012:
"In our central forecast we have the unemployment rate drifting up probably to around 5½ per cent some time over the course of the next year and then gradually coming down a little bit."
According to the RBA's empirical research, the unemployment rate is one of the central bank's best explanatory variables for future inflation. And what has happened to unemployment since the DG--rather unusually--revealed the RBA's 2012 forecast? It has not budged.
So while many (eg, Alan Kohler) have argued that the RBA has materially undershot its economic growth forecasts, it has also materially undershot its unemployment projection, which is just as important.
