After the hoopla of yesterday’s non-decision by the RBA to hold rates steady (but tilting towards a May cut, waiting on the CPI print), today’s chart comes from Mark the Graph:
As he says regarding the speculation around the May cut (emphasis added):
This leads to the obvious question, what is the threshold print that would yield a cut in official interest rates.
In rough terms, a quarterly print of 0.8 for the first quarter of 2012 would leave the annual rate largely unchanged at around 2.6 per cent (because the lapsing quarter would be the same as the new quarter). For this reason, I suspect the threshold is a quarterly print of 0.8 or lower, even though a print of 0.8 per cent represents an annualised rate of 3.2 per cent, which is above the target band.
I suspect a quarterly print of 0.9 (that is to say, 3.6 per cent annualised) would be a bridge too far for the RBA. Although it would only see the annual print increase by 0.1 percentage points, it would suggest an inflation problem may be lurking in the pipeline.
The next Consumer Price Index (CPI) comes out on 24th April, well before the May RBA meeting, although it is a shame that more timely statistics are not available to measure something that should be counted. The most recent survey of economists median estimate for headline inflation was 3.15%, well below the “bridge too far”. Although the same economists (all bar one) are predicting GDP growth with a “3” in front of it, which is astounding given the fiscal and credit headwinds facing the Australian economy.