Correction: The CPI recorded zero change in December quarter, not September quarter.
The TD-MI Monthly Inflation Gauge recorded a rise of 0.2% in January to be 2.2% above the level of a year earlier. The Gauge rose 0.5% in December.
While there is nothing in these data to stop the RBA from cutting interest rates at its Board meeting tomorrow – it’s close to certain it will - there is just a smidge of early evidence in the last two months that suggests inflation may settle in the bottom half of the RBA target range rather than fall below the bottom of the target range as looked likely a month or two ago.
Admittedly, there is a lot of seasonality in the inflation results and the new year usually captures a range of once-a-year price rises. This will be adjusted away with the seasonal adjustment when the official CPI and the underlying measures are released in late April.
That said, with the January monthly inflation data now out, it is possible to make a reasonably well-founded estimate of the March quarter CPI. Based on the last four months of TD-MI data, it looks like the March quarter CPI will rise by around 0.8%. This estimate will inevitably be modified with the February results in four weeks time and also when we get information on things like petrol prices in March, but for now, the current estimate is a 0.8% rise.
0.8% for the March quarter CPI may seem high. But it probably isn’t too bad due to seasonal issues mentioned above, but also the underlying measures calculated by the RBA suggest – at this very early stage – an increase of 0.6%. If realized, this would see through the year underlying inflation dip to around 2.3 or 2.4%. Don’t forget the CPI recorded zero change in the December quarter.
Tomorrow, the RBA Board will be sitting down to its Iced Vovos and Monte Carlos knowing inflation is well contained. It can cut 25 points, sit back, see what the banks do, see how much jobs bounce back next month and wait for the next monthly Inflation Gauge to see if there is anything more than noise in the data. Global conditions may also be a little clearer in March.