TD-MI Inflation, higher than comfortable

The monthly TD-MI Inflation guage has just been released with a rise of 0.3% in July up from the flat result last month. This has kicked the year on year change up to 3.2% and, for those of us who like to try to interpret charts, the chart below suggests the period of pullback/consolidation in the rise in this monthly index might be ending.

 Source: Bloomberg

This survey includes 90 items in its basket and the net balance was 6 items rose. That is, 28 items increased, 26 items decreased and 40 items remained unchanged.

The last six months sees inflation having risen 1.5% so if we are a bit crude and double that we end up with the top of the RBA’s band at 3% – which is a little on the high side. Equally however you could argue that if this is as bad as it is going to get with all the one off factors that we have seen in the past 6 months then we don’t really need to worry too much about the inflation picture.

The trimmed, which is really what matters to policy makers was up a more benign 0.2% and the last 6 months has only risen 1%.

This data, to a certain extent, will reinforce any concerns held by the RBA over an acceleration, or potential thereof, in Australia’s inflationary outlook. It is now a question of how hard they want to push this idea at tomorrow’s Board meeting and what weight they give the concerns around their central, mining boom/inflation, tendency.

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  1. Any hopes for lower interest rates have been dashed until our economy tanks further and unemployment jumps up in a significant way. This in turn would force quite a few people to seek mining jobs putting less stress on wages in this sector.

    The good thing is that the tightening bias of the RBA is conducive to debt reduction. It’s time to flush the system while we still can do it.

  2. In the stagflationary environment of the 1970’s, there was a wage-price spiral. But that was when the trade union movement was at the zenith of it’s power and probably more than half of all private sector employees were unionised. Last I looked, union membership the the private sector was running at about 14%. Would Australian workers – in general – really be capable today of making large, across-the-spectrum wage claims in the face of inflation in non-disscretionary/limited discretionary living costs?

    • Sandgroper Sceptic

      It is a good point Lefty but it is already starting. QANTAS is one example, government employees seem to be still getting very nice salary increases. The issue is not one of organised labour power but of expectations, if people anticipate higher inflation they want higher pay rises to compensate.

      • The ability to actually get them has a lot to do with how much collective power the employee can wield though – unless they are upmarket or in an area where skills and labour are in short supply.

        Is there much point in many employers putting the price of their goods and services up in response to rising wage claims when consumers are scarcely consuming those goods and services as it is?

        I admit to not knowing with any great certainty the answers to these questions but – worryingly – it looks increasingly likely that we’re heading into an environment that might just help us to find them out.

          • But if higher wages really are being broadly earned across the labour market, they don’t seem to be getting spent in a strongly growing discretionary manner that would indicate demand-pull inflation.