Moderate December quarter inflation data out on Wednesday won’t change the thinking of the Reserve Bank which will be keeping interest rates on hold for much, if not all of the coming year.
The Consumer Price Index figures for the final 3 months of the year and for 2017 as a whole will end up less than 2% and prove once again that all those worryworts who claimed cost pressures would rise in 2017, forcing a rate rise or two from the RBA, were badly wrong and shouldn’t be believed if they make the same forecasts this year.
Market forecasts show that higher prices for petrol and tobacco are expected to push headline CPI inflation up to 0.7% quarter on quarter or 2% year on year, but underlying inflation is expected to remain subdued and below target at around 0.5% qoq or 1.9% yoy.
But don’t discount a repeat of what happened in NZ – higher petrol and other costs were expected to push inflation up by 0.4% in the final quarter of last year – instead it came in at just 0.1%, for an annual rate of 1.6%, well short of the 1.9% market forecast and the 2% official target for the country’s Reserve Bank.
The consumer price index, published by Statistics NZ, showed higher petrol prices, up 6.1% which were offset by a bigger than usual seasonal decline for retail prices.
AMP chief economist, Dr Shane Oliver commented “New Zealand inflation surprised on the downside for the December quarter highlighting that the move to higher inflation globally is still taking a while to get underway.”
The Kiwi central bank meets next week, two days after the first meeting of the year for the RBA board. No change in rates is expected. Te first Statement On Monetary Policy for the year will be released late next week after being discussed at that board meeting.
RBA Governor, Phil Lowe has a major speech planned for Thursday week and the bank’s chief economist, Assistant Governor, Luci Ellis is down to speak on five days later on February 13. It is clear the central bank wants to get its view of the economy for 2018 out in front of the pubic eye.
The Aussie dollar is up more than 11% from the lows at the end of December around 72 US cents (which should provide a boost to the CPI). If the rapid rise this year (thanks to the slide in the value of the greenback) in the value of the Aussie is sustained over the next few months it will relieve pressure on inflation and have the impact of a slight tightening in monetary policy.
That is why the RBA won’t move on rates for quite a while. The rapid slide in the value of the US dollar is the surprise global change so far this year and if sustained it will put a lid on inflationary pressures and wage rises here, even though there are more signs of labour shortages appearing in the economy.
In other Australian data expect the NAB business survey (tomorrow), credit growth (Wednesday), business conditions PMIs (Thursday), CoreLogic house price data for January (also Thursday) to show a further cooling in the Sydney and Melbourne property markets and the latest building approvals for December (also Thursday).
