The debate between the RBA rate cutters and rate holders continues this morning after the release of the TD-Melbourne Institute Monthly Inflation Guage showed a headline rise of just 0.1% in January, which kept the year-on-year rate well below the bottom of the RBA’s 2-3% band with a print of 1.5%.
But, just like last week’s Q4 official inflation data there was a big difference in outcomes between headline and other measures. The trimmed mean rose 0.3% in January taking the year-on-year rate to 2.3% while the ‘core’ inflation reading was a sharp 0.7% rise in January once fuel, fruit and vegetables were taken out. That left core prices 2.4% higher than a year before.
Annette Beacher, TD Securities Head of Asia Pacific Economics, reckons there are signs that the underlying inflation picture is nowhere near as benign as the headline would suggest.
“While early days, and masked by the fuel price slump, there could be a message in the jump in tradable audio-visual goods prices, with December discounting sharply reversed in January. Such trends bear close watching,” Beacher said.
This is especially so given the strong downward move of the Aussie dollar and expectations of further falls.
The implications for the RBA Board meeting tomorrow in the dichotomy between headline and core inflation lead Beacher to conclude that “Board members to have a robust discussion about the impact of the lower Australian dollar and oil price slump on the outlook for domestic activity and prices, the unusual global central bank decisions in recent weeks, and the reasons behind heightened expectations for the Board to deliver a rate cut that day.”
However, Beacher is firmly in the “No” camp and is not expecting a rate cut from the RBA tomorrow.