I thought RBA Deputy Gov Battellino’s speech today was aimed at taking the emphasis off tomorrow’s CPI report.
Rick’s emphasis on the fact that 4%yoy global growth is pretty good, and that in recent times the data had surprised on the upside of that forecast, seemed aimed at shifting the focus to growth data. The comment about easing if inflation was low was always conditional on demand needing a boost, and Rick seemed to be saying that he (the Bank?) does not think demand needs stimulating just now.
Things in financial markets have improved a lot since the RBA’s 4 October meeting, and the real data has been pretty good too. Given that the RBA’s central case is that we are at the bottom of a multi year investment led upswing, i would think that the most a 0.5%qoq for Q3 trimmed mean will get is a sigh of relief – for if the RBA is even partly right about growth, inflation is likely to trend up over the next few years.
I do not think that there has been sufficient evidence to convince the RBA that growth is going to be substantially weaker than they previously expected, over a long enough period of time, to say that inflation is now more likely to trend down toward the bottom of their target band.
My personal forecast is +0.6%qoq for the trimmed mean. I think it would take 0.4%qoq or lower to get a rate cut in November … But I am not convinced even a 0.4%qoq would do the trick without something to weaken the demand forecast a little further. Right now, I should think that their 2yr ahead forecast is around 2.75%yoy, down 50bps from the August SOMP.