As is well known, the RBA’s easing bias is conditional upon inflation. For a few months now, the RBA has said that the inflation outlook is sufficiently low that there is scope to stoke demand with rate cuts should it falter.
Today’s employment report gives us a bit of information on both fronts — as the labour market is a good guide to both current demand and future inflation.
The combination of a decline in the unemployment rate and higher than expected CPI may kill the easing bias, however the available inflation information suggests that inflation remains very low.
The chart above shows the NAB selling prices series against headline CPI — if anything inflation appears to be slowing once again. This creates a bind for the RBA as they will not want to burn credibility by holding an easing bias and not acting for an extended period.