\n\tBy Greg Peel<\/p>\n
\n\tQuick! Everyone running screaming back to the other side of the listing boat again!<\/p>\n
\n\tThe thing about central bank interest rate moves is that they're always difficult to get right in terms of timing, but rarely are they difficult to get right in terms of direction. Since the RBA<\/span> last hiked in November, each month's discussion has flipped from they will to they won't, they will they won't, with every new development. But recently, Westpac's economists threw a spanner in the works by not simply suggesting the RBA<\/span> wouldn't hike, but suggesting the bank was about to cut rates, thus ushering in a whole new discussion of either up or down.<\/p>\n \n\tMost unusual.<\/p>\n \n\tWestpac's change of heart was influenced mostly by the economists' own consumer confidence survey, which recently plunged, along with a similar result for NAB's business confidence survey. And then there's Europe. Westpac decided that rather than a strong mining sector outweighing a weak consumer sector, the weak consumer sector would overwhelm the strong mining sector in the RBA's<\/span> thinking. To give Westpac its due, the futures market had already arrived at the same conclusion.<\/p>\n \n\tDoubt must have begun to have crept in down in Sussex Street, however, when the minutes of the July RBA<\/span> meeting were released last week. They showed the RBA<\/span> still had a hawkish bias and it would all come down to today's June quarter CPI result. Well, the result's in.<\/p>\n \n\tAt 0.9% growth in both the headline and the core readings, the June CPI beat expectations of 0.7% in both cases. Westpac has started to back-pedal. With no acknowledgment of their recent change of stance, the economists simply concluded in their “first impressions” report that “we do not see a case for an RBA<\/span> rate hike at the August meeting”.<\/p>\n \n\tThis rather contrasts with ANZ's<\/span> team: “another 25bps<\/span> rate hike before year-end is now clearly a high probability”; and CommSec's<\/span> “the data support the view that the next rate move is up and raise the possibility of earlier action than our November call”.<\/p>\n \n\tHeadline inflation is, as at the end of the June quarter, running at 3.6% per annum growth. Given a lot of that growth relates to things like petrol and food (which is disaster impacted), the “core” rate of inflation is only 2.7%, up from 2.3% at the end of March. That's inside the RBA's<\/span> 2-3% comfort zone, however the problem lies not with the absolute number but with the trend.<\/p>\n \n\t“Today's number,” says ANZ<\/span>, “ shows we are entering this upturn at an already uncomfortable stage of the the inflation cycle (indeed a worse starting point than the RBA<\/span> expected)”.<\/p>\n \n\tThe “upturn” to which ANZ<\/span> refers is the expected increase in Australia's GDP growth rate as the next wave of resource sector investment starts hitting the data. While economists suspect the RBA<\/span> might actually lower its 2011-12 GDP growth forecast next week, given the counterforce<\/span> of the weak consumer, the new number will still signify an upturn from here. And as we know, having been caught out in 2007-08, the RBA<\/span> intends to move policy ahead of inflation, not behind it.<\/p>\n \n\tThe RBA<\/span> won't move next week, nevertheless. It will remain “prudent”, as it has suggested, while events play out in Europe and the US. But the RBA<\/span> sees no signs of dangerous slowdown in China, so it won't sit on its hands for too long. It is very unlikely the board will wait for December quarter data, due in the summer of next year, to call time. There is a widespread expectation that the second half of 2011 will see a pick up in global activity from an uncertain first half, and the RBA<\/span> is fully aware of such forecasts.<\/p>\n \n\tSo we are probably looking at October, or even September.<\/p>\n","protected":false},"excerpt":{"rendered":" A snapshot of economist responses to today’s June quarter CPI result.<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58524"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58524"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58524\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58524"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58524"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58524"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}