Australian CPI, Signals Rates are High Enough
Australian CPI conveniently works into the October RBA minutes. In fact q/q CPI rose 0.7% in Q3 versus Q2, a smaller than projected increase following the 0.6% gain in Q2. Y/Y CPI was 2.8% above the level in Q3 of 2009, also below expectations after the 3.1% y/y bit in Q2. Moreover, core inflation measures were light and came in short of expectations. Taken together, this is a notable slowing from the 3.1% y/y rate in Q2 and the average of the quoted figures appears to be inconsistent with the RBA’s recent CPI forecast. In the October minutes the RBA stated that, “underlying inflation around 2.5-2.75% would be consistent with the central forecast scenario.” Indeed, the tame total and core CPI figures for Q3 provide cover for the RBA to leave rates a steady 4.50% at next week’s meeting. However, given the fact that global central banks have been pumping abundant liquidity, overall, it appears the RBA will most likely retain its tightening bias and there still see room for a hike next year.
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