Letter from Sydney: Trimmed mean inflation, a core measure o...
Letter from Sydney:
Trimmed mean inflation, a core measure of price growth that attracts the most attention from the RBA, rose to 4.4% in May, putting it well above the central bank’s forecast of 4.0% for the full year to June.
Those grim numbers follow a surprise high-side inflation shock in the first quarter consumer-price index and have been joined by recent business survey data showing that prices are still rising on several fronts.
There will have to be a stunning reversal in the inflation trajectory in June to allow the RBA to save face and avoid raising interest rates in August.
The RBA is already fearful that its goal of getting inflation back to the midpoint of its 2% to 3% target by mid-2026 is under extreme pressure.
RBA Gov. Michele Bullock told reporters this month that a lot of things have to go right if the central bank is to achieve its target on time.
They aren’t going the RBA’s way.
The RBA doesn’t really have the option of not raising interest rates in August and kicking the can down the road with a new forecast that sees the inflation target midpoint achieved in late 2026.
The RBA’s credibility would be eroded if it tried that.
Inflation has already been above the target band for many years, and any further delay in restoring price stability risks entrenching high inflation expectations and wage demands and perpetuating a cycle that will kill off hopes of near-term interest-rate cuts.
“A high second-quarter CPI print means a series of hikes, and the best way to focus consumer minds and change the discretionary-spending psychology is to hike rapidly,” said Craig Vardy, Australia head of fixed income at BlackRock.
“Restarting a hiking cycle and then dragging it out just sets the RBA up for more inflation disappointment,” he said.
Trimmed mean inflation, a core measure of price growth that attracts the most attention from the RBA, rose to 4.4% in May, putting it well above the central bank’s forecast of 4.0% for the full year to June.
Those grim numbers follow a surprise high-side inflation shock in the first quarter consumer-price index and have been joined by recent business survey data showing that prices are still rising on several fronts.
There will have to be a stunning reversal in the inflation trajectory in June to allow the RBA to save face and avoid raising interest rates in August.
The RBA is already fearful that its goal of getting inflation back to the midpoint of its 2% to 3% target by mid-2026 is under extreme pressure.
RBA Gov. Michele Bullock told reporters this month that a lot of things have to go right if the central bank is to achieve its target on time.
They aren’t going the RBA’s way.
The RBA doesn’t really have the option of not raising interest rates in August and kicking the can down the road with a new forecast that sees the inflation target midpoint achieved in late 2026.
The RBA’s credibility would be eroded if it tried that.
Inflation has already been above the target band for many years, and any further delay in restoring price stability risks entrenching high inflation expectations and wage demands and perpetuating a cycle that will kill off hopes of near-term interest-rate cuts.
“A high second-quarter CPI print means a series of hikes, and the best way to focus consumer minds and change the discretionary-spending psychology is to hike rapidly,” said Craig Vardy, Australia head of fixed income at BlackRock.
“Restarting a hiking cycle and then dragging it out just sets the RBA up for more inflation disappointment,” he said.
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