Stable inflation puts RBA in holding pattern over rates

FIRST the big points. The overall inflation numbers were low and unsurprising. They didn’t “demand” another interest rate cut from the Reserve Bank and the RBA will duly leave its rate unchanged at next Tuesday’s meeting.

We’ve had two cuts in successive months and the banks have passed most of the half-per cent total on. A third cut in a third successive month would “ring alarm bells”. It would also do bugger-all – except trigger a bank brawl.

Both another cut and the alarm bells would be, shall we say, inappropriate.

The big event comes early Thursday morning in another place: what the US Fed does with its interest rate and then, critically, what the market reaction is. It would be, shall we say, surprising if the Fed didn’t cut. In its case, for the first time, not only this year but in more than 10 years.

“Everybody” has been demanding a Fed cut; “everybody” believes it is a done deal. Nevertheless the consequences are going to be totally unpredictable – both what happens over there, on Wall St and more broadly in the US, and here.

The immediate rate consequence aside, the CPI detail told a lot of different and indeed conflicting stories.

The quarterly headline figure of 0.6 per cent gives an annualised rate of 2.4 per cent – dead in the middle of the RBA’s 2-3 per cent target range.

But if joined with the zero rise of the previous quarter, the annualised inflation for the six months was only 1.2 per cent. While the rise over the year to the June quarter was 1.6 per cent – higher but still below the RBA target range.

You get similar mixed messages in the detail. The biggest specific rise was petrol price. But that is very, and always, volatile. The biggest negative – falling prices – was telco equipment and services.

Inflation might have started to pick up. It might just as easily have stayed low, barely above 1 per cent.

We will have to see what happens in this current quarter.

Even more importantly the RBA will as well – the numbers demand waiting and watching rather than any further action. Especially given what’s – uncertainly – developing globally.

“Everyone” and especially the RBA will want to see what the next wages numbers show and even more the next jobs and jobless numbers in three weeks. Both of those are also teetering on breaking – either way.