Gold bugs snore on or why today’s September quarter inflation figures won’t matter (except as a part of economic history and statistical record-keeping).
September quarter Consumer Price Index is expected to show one of the largest quarter on quarter rises seen for some time – market estimates put the figure at 1.5% after the 0.3% fall in the March quarter.
As such a rise of those proportions would have normally sent the inflationistas in the business media, markets and economics departments giddy with anticipation of a move to crush growth, wages and demand with a rise in interest rates from the Reserve Bank.
Remember how the AFR and a host of economists and business writers called for a rate rise in June, July and August 2018 after the June quarter CPI came in at an annual rate of 2.1%.
Interest rates in fact did move after that – three times in 2019 as the RBA battled to arrest a decline in household spending and spreading wage stagnation.
If we get a rise of 1.5% quarter on quarter (and subject to no revisions) core inflation will have risen 0.6% in the year to September, well below the 2% to 3% range for the now ignored target range of the RBA.
But as the Reserve Bank has made clear in a speech from Governor Philip Lowe and the length minutes of the October monetary policy board meeting, crushing inflation is out, a tight jobs market (and all that entails in the form of higher wages, costs and price pressures) is the new monetary policy setting.
As the October RBA board minutes stated:
“Over recent months, the Board had communicated that it would ‘not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 percent target band’.
“Given the higher level of uncertainty about inflation dynamics in the current economic environment, the Board agreed to place more weight on actual, not forecast, inflation in its decision-making. Members indicated that they would also like to see more than just progress towards full employment before considering an increase in the cash rate, as the Board views addressing the high rate of unemployment as an important national priority.
“Members recognised that while inflation can move up and down for a range of reasons, achieving inflation consistent with the target is likely to require a return to a tight labour market.”
That will be the mantra for the RBA for the next three years. Of course parsing statements and speeches from the RBA and its leadership will become the newest national sport for the next three years – fruitless though just as was the mid 2018 outbreak of hysterical calls for a rate rise.
Underlying inflation in the September quarter is expected to remain weak though at around 0.2% quarter on quarter and 1.1% year on year – that will remain a long way under the 2% to 3% inflation target over time (which has been pushed aside for the next couple of years).
That’s what the RBA will be looking at every quarter for the next three years.
