This week, it’s all about inflation and how much the RBA will miss its target by.
The December quarter CPI will reveal modest price pressures in the economy. The market consensus is that annual underlying inflation will be around 1.5%, which will mean it has been a full year that underlying inflation has been below 2%. It’s over two years since headline inflation was above 2%. Recall the RBA has a target for inflation of between 2 and 3%.
If the RBA was true to its inflation target, it would be cutting interest rates to try to reflate the economy, which after all, is experiencing sluggish growth with stubbornly high unemployment. But under new Governor Phillip Lowe, the RBA is also concerned about house prices, it is looking at 2017 with an optimistic slant and it reckons GDP growth will hit 3% or more in 2018 with current rate settings. As a result, it has been and probably still is, reluctant to cut rates. Maybe a surprise inflation result of the down side will make it change its mind.
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You can see more of Stephen Koukoulas’ charts at The Constant Investor.
