Aus inflation/further thoughts

Yesterday’s inflation data was definately unnerving, and markets have reacted/repriced accordingly.

Zac Gross (academic) produces a variant of Jason Furman (US academic) ready reckoner, noting that most commentators do downweight the headline and seasonally adjusted 1m numbers in the monthly series (that bottom left section). It is confronting, not the least of which because we know red is a strong colour.

Still, putting it into time series data, an annualising the 3 month (which you can do in fancy way, using exponents, or, by multiplying by 4, which is easier) you do see the broadly disinflationary impulse appears to be still evident. Hanging by a thread, maybe, but that little pink dashed line that I run through both graphs (you may need to zoom, depending on the brightness of your monitor) is a moving average, of sorts, and it doesn’t suggest things haven’t fallen over yet.

Clearly, another few hot prints in the underyling series (so ex volatiles and travel) would upset that apple cart.

If does look like the RBA has the greenlight to go for 25bps in August. The budget is stimulatory.

But, I am also mindful that many times we’ve looked to the US data, only to be head faked (i.e. what looked like failure to progress on the inflation front, that inflation was building a base from which to rise again, didn’t happen), and you can see that in the graph below.

I’ve included the US budget deficit in there, given it is large, and probably not at all the right time for running sizeable deficits, which is exactly what the Australian federal and state governments are doing. But, the point being that progress can be made, even with an undesirable fiscal stance.

We’ll get the US PCE print over the next day or so, and that’ll determine how we look come Monday. For now, all that matters is inflation and employment.

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