Monday, 23 April 2012

Inflation: Dead, buried and in need of resurrecting

Underlying inflation has not been this low – 2.1% through the year – in 13 years.  Next quarter, when the 0.8% rise from June 2011 drops out of the annual run rate, it’s likely that underlying inflation will break below the bottom of the RBA target band of 2.0% and there’s a sporting chance it will fall to a record low of 1.8%.
Headline inflation has crashed to 1.6%, below the bottom on the RBA target band and has risen at an annual rate of 0.2% in the last 6 months!
Whichever measure of inflation you wish to use, inflation is massively lower than most forecasts from just 6 or 9 months ago which were skewed towards annual inflation accelerating to 3% or more.  In the second half of last year, some market commentators were even suggesting that Australia had a “major inflation problem” and that the RBA was well and truly “behind the interest rate curve”, meaning they expected 2 or 3 rate hikes in quick succession.
The fact that the inflation “problem” could be emerging on the downside and that there have already been 2 rate cuts with 100 basis points more priced in for the next year is a reflection of the all-to-easily dismissed anecdotes from retailers, manufacturing, the tourism and education sectors, housing, construction and basically anyone not attached to the mining sector.  Maybe they had a point when they were saying conditions were tough.
To see the whole article, click below:

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