Don’t expect the Reserve Bank to be moved by the first significant June quarter Consumer Price Index due for release on Wednesday.
Unlike many similar releases in past years, the importance of this particular bit of data will be pretty unimportant this time around because inflation isn’t a worry for anyone bar the scaremongers and gold bugs.
The June quarter figures will be benign, leaving plenty of scope for the RBA to keep the cash rate at the record low at 2.5%.
And that point will indeed be underlined this week by the appearance of three senior RBA officials in public, led by Governor Glenn Stevens.
He is due to deliver his annual lunchtime address to the Anika Foundation in Sydney tomorrow. And also tomorrow, Guy Debelle, the RBA’s Assistant Governor (Financial Markets), is on a discussion panel at a financial forum in Sydney
And on Wednesday, Reserve Bank Deputy Governor Philip Low is due to give introductory remarks at the financial conference in Sydney.
As a result, by the end of the week the message on interest rates from the RBA ands the data will be "no change".
The AMP’s Chief Economist, Dr Shane Oliver said in his weekly note at the weekend that; "We expect headline inflation of 0.5% quarter on quarter or 3% year on year, with underlying inflation of 0.6% quarter on quarter or 2.6% year on year."
"Key drivers are likely to be the ongoing increase in tobacco excise and seasonal price increases for health, offset by falls in prices for petrol and food and ongoing weak pricing power on the back of soft final demand."
The Commonwealth Bank’s chief economist, Craig James said in a note on Friday that the bank is expecting the headline CPI to have risen by 0.6% for the quarter, to be up 3.1%.
"The various ‘underlying’ measures of inflation probably rose by around 0.7 per cent in the quarter and by 2.8 per cent over the year. There was a seasonal increase in health fund costs in the June quarter, but this may be offset by a fall in the cost of domestic travel and accommodation after the peak summer season.
"Clothing prices may also have fallen in response to warm autumn weather (and could continue to fall because of the pinging world price of cotton). Car prices also remain the most affordable since the 1970s, courtesy of a firm dollar and competition," Mr James wrote.
As Dr Oliver observed, the RBA "is unlikely to be fussed by the headline inflation rate being at the top end of the target range as it reflects the inflation surprise of the last half of last year, underlying inflation has been benign over the last six months and wage cost growth remains weak."
That sounds a lot like comments in the minutes of the June, may and April meetings of the RBA board, and the associated post meeting statements from Governor, Glenn Stevens.
"The recent national accounts data indicated that unit labour costs were little changed over the past year, reflecting low growth of wages and above-average growth of productivity.
"Members noted that while labour productivity had been boosted by a sharp improvement in the mining sector, productivity growth had improved across a wide range of industries in recent years.
"Business surveys and liaison suggested that wage growth was likely to remain subdued for some time, consistent with the modest improvement in the labour market to date," the minutes said.
But the final paragraph of the minutes and those statements from the governor tells it all about the RBA’s current "wait and watch" stance:
"With growth in resource exports expected to ease back, GDP growth was forecast to be a little below trend over the next year or so, before picking up gradually thereafter. Inflation was expected to remain within the target.
"Accordingly, with the significant degree of monetary stimulus already in place to support economic activity, the Board judged that, on present indications, the most prudent course was likely to be a period of stability in interest rates."
That’s a far more important view than the headline rates in the CPI report on Wednesday, so if you read or here anything to the contrary, ignore it.
