Scouring through the RBA Chart Pack each month beats reading 100 articles on where various people think the economy is or maybe going. It presents data and information on sectors of the economy in a no-frills, easy to analyse way. Each chart contains a myriad of information that feeds into the RBA Board deliberations each month on monetary policy. It's a must view every month.
The chart on underlying inflation remains a stand out for a couple of reasons. It is very disconcerting to see how horribly high inflation reached in the 2007 / early 2008 period despite the best efforts of the RBA to reign it in - recall it hiked the cash rate to 7.25% with mortgage rates topping out just under 10%. Yet underlying inflation surged to 5%.
Thankfully, that episode is over and underlying inflation is now hovering a bit below 2.5%. That is a sure sign of first class economic management and it gives the RBA flexibility as it considers the next move in rates.
While the next official inflation data will not be released until late January, the data from the monthly TD-MI inflation gauge and some anecdotes into the December quarter suggest it will fall further in the next little while. Wages growth is subdued, the economy is operating below full capacity and the Australian dollar is still strong enough to keep many prices in check. Headline inflation looks like being flat or even negative for the December quarter with underlying possibly in the 0.3% to 0.5% range. This is very low and suggests annual underlying inflation is on track to test 2%. The last time underlying inflation fell below 2% for any sustained time was in the late 1990s. The odds favour that occurring again sometime in 2012.