The CPI data out today was meaningless, in terms of guiding a rate cut decision. So today I will explain why this is the case, as we go over the numbers. Alongside the main release, there was a second report on revised weights which were applied.
The Australian Bureau of Statistics (ABS) released its monthly inflation indicator for January, which were based on revised weights to the index, and we should also highlight that the first month of the quarter data is at best partial, as while it does provide us with an update on household durable goods the services data apart from garments repairs, hire and maintenance and repairs to dwellings.
Or in other words, the Numberwangers are at it again, despite the rather triumphant tones in some of the media about the prospect of rate cuts.
While the RBA still considers the quarterly CPI as the best gauge of inflationary pressures, the new monthly indicator factors into the central bank’s interest rate decisions when it delivers an unexpected outcome.
The result was a 3.4% rise over the year, below economists’ expectations of a 3.5% rise. 3.4% in the year to January, is in line with the outcome recorded in December to remain the equal softest print for monthly inflation estimate since November 2021.
When excluding volatile items from the monthly CPI indicator, the annual rise in January was 4.1%, down from 4.2% in December” and annual inflation when excluding volatile items has been declining since the peak of 7.2% in December 2022.
The Trimmed mean (core) inflation also fell to 3.8% in the year to January (prior 4.0%).
The RBA does not expect inflation to return within its 2 per cent-to-3 per cent target band until December 2025. And there is not enough here, in my view to lead the RBA one way or the other, though the door remains open, possibly for a rate cut towards the end of the year, unless we see a second surge in good prices due to higher transport costs, and higher wages pushing though to higher goods and services costs.
The bottom line is while the figures were a little lower than market expectations for inflation to increase to 3.6 per cent, they are unlikely to alter the outlook for monetary policy due to the volatility of the monthly consumer price index.
And by the way, the Aussie Dollar dropped a bit – but only after the Reserve Bank of New Zealand held the cash rate there, and signalled rate cuts, eventually.
http://www.martinnorth.com/
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