Persistent services inflation contrasts with falling goods prices
Underlying inflation is tracking in line with the RBA's forecast, with strong services inflation contrasting with falling goods prices.
The monthly CPI for February showed underlying inflation tracking in line with the RBA's forecast profile, with persistent services inflation contrasting with falling goods prices in trend terms.
The ex-volatile items/holiday travel CPI rose by 0.5% in February after increasing by only 0.2% for four months in a row, where the increase in February was the largest rise since August.
This suggests that the RBA's preferred measure of inflation - the quarterly trimmed mean CPI, which is due on 24 April, ahead of the 6-7 May board meeting - is on track to post another increase of 0.8% in Q1, in line with the RBA's interpolated forecast.
There is still a margin of error in mapping from this monthly measure of underlying inflation to the quarterly trimmed mean CPI, although both rose by 0.8% in Q4.
Importantly, the monthly CPI echoed the trend shown in other advanced economies, where ongoing strength in services inflation contrasts with goods disinflation.
Goods and services prices have been seasonally adjusted and are broader in scope than the ex-volatile items/holiday travel CPI that proxies the trimmed mean CPI. But that is still useful in demonstrating how the RBA will need a material slowdown in services inflation to be confident that overall inflation will sustainably return to the 2½% midpoint of its target.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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