Terry McCrann tips a hike for the Bank’s 2 August meeting.
He thinks that Bank goes on 2 August unless there is a LEH style melt down.
I think the Bank is a 70% chance. Two quarters of high inflation gives them the political cover they need. They can hike here, and if the Cassandra’s are right and the economy cracks, they can cut later. Stevens has form on this — he did the same in late 2007 and early 2008.
But if their forecasts are right, and the boom is only just getting under way, they can’t really afford to wait for Q3 and bank another 0.9%q/q. Don’t believe the hype on the once off stuff — median CPI was 0.9%, so one half the basket is inflating faster than that!
As I have shown in other posts, inflation only really falls when the unemployment rate is rising. If the current inflation pulse is sustained, it simply tells us that the unemployment rate is too low.
That is what happens when you re-regulate markets. The transition path to the new equilibrium is higher inflation, higher rates, and higher unemployment.
Kudos to my friend, Chris Joye who has been a lonesome inflation hawk this past month or so.