Inflation going nowhere

Largely as the markets had been expecting, CPI for the third quarter showed a slowdown from the heady (?) 2.1% pace of the second quarter and settled back to sub-2%. The quarter on quarter CPI change was +0.4% for a yr/yr rate of 1.9%. However, for those looking more closely, which one would hope includes the RBA, the measures of core inflation (Trimmed mean and weighted median) fell to an average of just 1.75% for the year (with downward revisions to previous quarters).

Tradables inflation increased sharply to +1.4% y/y on the back of the weaker A$as imported goods become more expensive. “Domestic inflation”, in the shape of non-tradables fell to 2.2% y/y.

On the back of these numbers we may be waiting a long time to see any move upwards in rates from the RBA. Conversely, with unemployment falling and employment growth reasonably healthy we would not anticipate the RBA cutting rates despite the extended period for which core inflation has remained stubbornly below their 2-3% target range.


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