The TD – Melbourne Institute’s monthly inflation gauge for May has just been released showing a 0.3% rise, following on from April’s 0.4% increase.
This saw the index print a 2.9% annual rate for the 12 months to the end of May.
A result which has alarmed Annette Beacher, TD Securities Head of Asia Pacific Research, who wrote in a note accompanying the release that the clear signal from the inflation gauge is that, “inflation remains sticky and the ‘soft’ prior March quarter CPI report could prove to be a one-off”.
Beacher’s view on the economy is that it is stronger than many believe and with an inflation pulse the market is too sanguine in its outlook on interest rates.
While we may have pushed out the beginning of our expected tightening cycle from November to March 2015, upside to price and activity data speaks to us that the market remains too complacent by not pricing any rate rises over the next twelve months.
That stands in contrast to others such as Goldman Sachs who are now looking for rates in Australia to fall another 0.25% to 2.25%.
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