Economists think we might get a pleasant surprise when we see the August Consumer Price Index (CPI), which could tell us that inflation is going to be in the Reserve Bank’s targeted 2%-3% band. However, the message coming out of the central bank is just because the latest number is under 3%, you shouldn’t expect a rate cut any time soon!

On hearing this, many Aussies feeling the economic and social pressures of 13 interest rate rises, could think they’ve been misled by the RBA, if inflation has a 2% handle and we don’t see a rate cut at the next board meeting of the big bank.

Interestingly, the RBA boss isn’t mincing her words, basically saying a good inflation number on Wednesday won’t count for much. In contrast, the money market expert bond players think there’s a 76% chance of a rate cut before the end of the year.

The AFR’s Michael Read reported this from Ms Bullock: “The board needs to be confident that inflation is moving sustainably towards the [2 per cent to 3 per cent] target band before any decisions are made about a reduction in interest rates. We really need to see progress on underlying inflation coming back down toward the target.”

So, the big watch today won’t be the headline rate that could be under 3%, but it will be the underlying rate of inflation. This takes out volatile or one-off reasons for price rises or falls and is seen as the more reliable guide to what’s happening to inflation.

This makes sense to an economist and central banker, but it would be frustrating to a normal person praying for a rate cut for hip pocket reasons.

Interestingly, Ms Bullock’s tough stance on when a rate cut will happen puts pressure on Treasurer Jim Chalmers and his PM Anthony Albanese, as Read explained: “But the RBA expects inflation to surge back above the target band next year when the energy subsidies expire. Ms Bullock said one-off government payments to households did not reduce the true inflationary pulse, and stressed she was focused on underlying price pressures rather than headline inflation”.

This is a gutsy shot at the Albanese Government’s attempt to lower inflation by helping households lower their energy bills temporarily. “The point I would make is that if tomorrow we get an inflation number with a two in front of it, so it’s back in the band, that doesn’t mean that we’ve got inflation under control. It doesn’t mean that inflation is sustainably back within the band,” Ms Bullock warned.

The Governor of the RBA isn’t wrong, but she doesn’t know what other forces could actually offset any spike in prices when the energy subsidies expire.

Like what? Try these:

1. Lower inflation helps lower inflation.
2. A higher Aussie dollar reduces the real price of imports.
3. Lower wage demands.
4. Higher unemployment.
5. Lower demand because of the 13 interest rate rises, especially as most borrowers are now over the mortgage cliff.

As an economist, I know we (and that includes the RBA’s number crunchers) never know all the moving parts that explain what drives statistics on things like inflation and unemployment.

So, the RBA could get a surprise over the next three months, and right now, the CBA economics team thinks we’ll get a rate cut by year’s end. However, most economists are now tipping February as the more likely month when the underlying inflation will be telling us the truth about what’s happening to inflation.

The Daily Telegraph’s John Rolfe put the inflation/rates debate into this colourful take by telling us that Ms Bullock said “Any politician who uses consumer price index data out today to claim that inflation has been tamed is pulling your leg…” However, I don’t think she actually used those words.

That said, her message was loud and clear. It virtually said the same thing, albeit with less Aussie colour about leg-pulling.