We didn’t get a rate cut on July 8 because the quarterly inflation figure was too high and the lower monthly figure wasn’t trusted. Confusing? Absolutely. Now, $156.7 million will be spent to get better statistics.
The uncertainty in what inflation reading to believe (which explained why the central bank didn’t cut rates this month) will be done and dusted after November, when the Statistician releases ‘fair dinkum’ monthly reports. Right now, the quarterly Consumer Price Index number is “fully formed”, while the monthly CPI is a shortcut version.
The SMH’s Shayne Wright explained why the credibility of monthly versus quarterly readings is so important. “May’s monthly inflation report showed annual inflation falling to 2.1 per cent,” he reminded us. “It has been within the RBA’s target band since August last year. But the March quarterly inflation report showed prices up by 2.4 per cent, with underlying inflation just slipping within the RBA’s target band.”
That band is 2-3%. While underlying (or trimmed mean) inflation came in at 2.9%, this was a reading from January to March, which puts pressure on the RBA board if the June quarter figure shows underlying inflation was notably lower than this 2.9% reading. And that’s fairly likely because the April underlying inflation was 2.8% but slumped to 2.4% in May. If the June quarter figure is near that number, accusers will come out of the woodwork to bag the RBA for a bad call on saying ‘No’ to a cut on July 8.
The ABS releases both the June monthly and quarterly statistics on inflation on July 30 (Wednesday week). If the quarterly underlying inflation is down, there’ll be a rate cut on August 12.
By the way, if the run of economic data is negative like the June unemployment indicator (which surprisingly spiked from 4.1% to 4.3%), then some economists will make a case for a half-a-percent cut.
That’s an outside chance, especially with central banks worldwide wary of what President Trump’s tariffs might do to global trade, worldwide economic growth and inflation. It’s easy to argue that we might have seen more rate cuts in the US, here and elsewhere, if the Trump tariff taunting wasn’t unsettling businesses, national governments and regulators (such as the RBA).
The importance of a better quality monthly CPI was underlined by RBA Governor Michele Bullock when her board said ‘No’ to a rate cut this month. “To the point about the recent CPI data that we saw, a lot of the focus was on the monthly data, and we think that’s a little too volatile and not quite representative of what’s really going on with inflation,” she said.
In case you’re wondering why the ABS has waited so long to do better monthly data akin to what happens overseas, well, the answer is simple — money!
Wright explains that the ABS has been allocated $156.7 million from Treasurer Jim Chalmers’ coffers to boost the quality of our statistics. I suggest that given a dodgy monthly CPI possibly denied us a rate cut 13 days ago, it’s high time we got the numbers we deserve.
