Here’s the Westpac CPI forecast for next week:
• Westpac is forecasting a meek 0.1%qtr rise (1.6%yr) in the headline CPI in the December quarter.
• December is historically a seasonally soft quarter due, in part, to the further discounting of health costs, and pharmaceutical in particular, as more households cross the PBS threshold for assistance. The ABS seasonal factors suggest that this negative seasonality is worth
–0.1ppts. Ergo, our seasonally adjusted forecast is 0.2%.
• The core measures, which are seasonally adjusted, are forecast to rise 0.6%qtr/2.3%yr (on average) which keeps
the 6mth annualised pulse at a benign 2.2%yr.
• Other key factors for the very low headline CPI printare: falling fruit & vegetable prices (–4.5%), the decline in crude oil prices which has resulted in auto fuel prices falling 7.3%qtr; while any possible pass though of the
weaker AUD to clothing & footwear prices have been held back by soft demand and ongoing retail competition.
• Offsetting the weaker prices are robust gains in housing (rents and house purchases) and tobacco (an increase in excise) and recreation (seasonal rise in domestic airfares).
And Bill Evans on why the RBA will cut the week after:
I’m inclined to agree. Glenn Stevens clearly doesn’t want to do it but as I said in December he should be ignored:
Stevens talked constantly about repairing “confidence” (cyclical) when what he should be talking about is repairing “competitiveness” (structural). To repair that we will need to increase productivity via tax reform, quality infrastructure investment, IR reform, Federation reform, so on and so forth. And install policies to lower the dollar below 60 cents. Stevens’s bureaucratic waffling around the fiscal agenda is self-defeating for the RBA because it traps it as the only lever to pull.
Captain Glenn is like Kafka’s half-changed cockroach in The Metamorphosis, horrified at the economist he was and appalled at the economist he must become. Rate prognosticators would be best served ignoring him and watching the economy. Rates will fall, he’ll have no choice.
I’ll take some kind of formal shot at the meeting in advance but with iron ore probably breaking to new lows next week, the deck is stacked for a cut.
