Large movements in petrol prices are likely to be excluded from the two key statistical measures – the weighted median and trimmed mean. We estimate (see: Aussie Macro Moment – RBA Statement on Monetary Policy) that the RBA is expecting a 2%YoY trimmed mean outcome. Our forecast is in line with the RBA’s estimate. As such, we don’t expect the RBA will cut rates at its May meeting.
However, there has been an ongoing slowdown in the pace of underlying inflation. Whilst we expect the 1Q16 outcome to be in line with the RBA’s outlook (0.5%QoQ, 2.0%YoY), the persistent weakness in unit labour costs, wages and strength in the A$ is likely to see future outcomes push below the bottom of the RBA target band.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
