Today’s TD Securities/Melbourne Institute (MI) Inflation Gauge for January takes on more focus than usual for the Australian markets …
From Kieran Davies, an economist at Barclays in Sydney:
“Higher near-term inflation and risks from the exchange rate make it hard for the Reserve Bank to keep a weak easing bias and it will likely shift to neutral”
“Further out, we see the bank remaining on hold for the rest of the year, with hikes starting in Q1 2015 assuming the economy is picking up by then”
- Most recent data show Q4 inflation came in at 0.9% q/q, with the annual pace of inflation up to 2.6%, well above the 2.25% the central bank had expected.
- Still well within the RBA’s long-term target band of 2 to 3%, but it had expected the rate to climb more gradually, to 2.5% by the middle of 2014
- If Q3 and Q4 are added together and annualized … inflation is already running at 3%
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More:
From CBA:
“There are influences on some parts of the CPI that don’t respond to the economic cycle or the RBA,” says Michael Blythe, chief economist at Commonwealth Bank of Australia in Sydney. He estimates such services account for about 60 percent of domestic CPI and 38 percent of the overall index.
From HSBC:
Paul Bloxham, chief economist for Australia at HSBC in Sydney, estimates the economy’s speed limit may now be as low as 2.6-2.8 percent. If so, it would have unwelcome implications. “Lower potential growth means that Australia has less room to accommodate any pick-up in demand, as it could more quickly translate into rising inflation,” said Bloxham. … “This could leave the RBA with less room to move to support demand than previously.”
