The RBA gave little away in their August statement – they made only the bare minimum of changes to their domestic assessment, to acknowledge the fact that the H1’12 data has been stronger than they expected.
In Australia, most indicators suggest growth close to trend overall. Labour market data show moderate employment growth, even with job shedding in some industries, and the rate of unemployment has thus far remained low.
Inflation remains low, with underlying measures near 2 per cent over the year to June, and headline CPI inflation lower than that. The effects of the price on carbon will start to affect these measures over the next couple of quarters. The Bank’s assessment of the outlook for inflation is unchanged: it is expected to be consistent with the target over the next one to two years. Maintaining low inflation over the longer term will, however, require growth in domestic costs to continue their recent moderation as the effects of the earlier exchange rate appreciation wane.
I was expecting something more – and it looks like I was wrong. The RBA does not appear to expect that the recently better data is going to be sustained (or they doubt the data itself). Perhaps this is due to the fact that their global outlook has darkened.
Having picked up in the early months of 2012, growth in the world economy has since softened
There’s some chance that the RBA said as little as possible so as to allow them a chance to see tomorrow’s employment data – and for sure that’s going to be important in their assessment of the inflation outlook – however given that they have explicitly said that their inflation outlook is unchanged it seems unlikely that they are going to try and move the market much in Friday’s Q3 SOMP.
I’d love to have been right about the RBA’s forecast revisions, but it doesn’t feel good just now. Market pricing is actually less than i expect over the next year (though i see the cuts coming later — November at the earliest) so the market is looking cheap-ish … perhaps it’s not worth waiting for the SOMP.