Today’s release of the CPI data for the final quarter of last year simply confirms what we have all known for some time; there is no real pressure on prices at present.
The CPI for Q4 was up 0.4% q/q for an annual increase of 1.7%; a modest increase from the 1.5% increases seen over the previous two quarters. However, far more attention will be paid to the two “core inflation” measures (the Trimmed Mean and Weighted Median) which strip out volatile price changes and are the preferred measures for the RBA when considering price trends.
The Trimmed Mean was up 0.6% q/q, +2.1% ann, while the Weighted Median rose by 0.5% q/q, +1.9% ann. This means that the average of the core inflation measures sits at the very bottom of the RBA’s 2-3% target range. It is perhaps worth noting that since the first quarter of 2010 (when average core inflation hit 3.3%) there has been only one core inflation plot outside of this range (that was in Q2 2012 when the average core rate of inflation fell to +1.85%). This in itself is a remarkable achievement by the RBA when we consider that the Cash Rate has been as high as 4.75% and as low as 2% over that five and a half year period.
The market seems convinced (as are we) that this does not suggest any imminent change in rate policy by the RBA at next week’s meeting.