World Video | Defence | Foreign Affairs | Natural Events | Trade | NZ in World News | NZ National News Video | NZ Regional News | Search

 

JP Morgan Announces Company Expectations


Today's September quarter inflation print was a little above market expectations, but the surprise is insufficient to alter the likely outcome of next week's RBA decision; we still expect a 25bp rate hike next Tuesday. A very low outcome today could have triggered second thoughts by RBA Board members for next week, while an unexpectedly high core result might, at a stretch, have got them thinking about a 50bp move. This inflation result, though, will not rock the RBA's boat, so Board members will deliver on market expectations for a modest rate hike next Tuesday. Indeed, even if Board members do think (briefly) about delivering 50bp, they will decide against scaring the horses on Melbourne Cup day.


We expect another 25bp hike in December, and a further move in February after the first Board meeting of 2010. Indeed, the arguments in favour of the steady removal of the "emergency" component of the RBA's current policy setting remain compelling, but an orderly exit is prefereable to a stampede. The RBA is removing the "insurance"component of the accommodative policy setting because the downside risks that loomed large earlier this year have receded further into the background.


RBA officials clearly are, however, anxious about the medium term inflation outlook, with last week's Board minutes indicating that the trough in inflation will be significantly higher than previously thought. Officials, therefore, want to push the policy setting closer to normal before the inflation problem becomes even more acute. There is, however, no rush, particularly so with other major central banks sitting on the policy sidelines.


In Q3, the headline CPI printed above expectations at 1.0%q/q (J.P. Morgan 0.7%q/q, consensus 0.9%q/q), after a 0.5% rise in Q2. This nevertheless dragged the annual rate of headline inflation down slightly to 1.3%oya, well below the lower band of the RBA's 2-3% target range. The biggest contributors to headline inflation in the September quarter were an 11% rise in electricity prices, a 4% rise for automotive fuel, a 14% rise for sewerage and water, a 3% rise in deposit and loan facilities, and a 1% rise in house purchase costs. Partly offsetting these rises were a 6% drop in vegetable prices, a 5% fall for fruit, a 4% fall for pharmaceuticals, and a 2.2% fall for electronics, mainly reflecting the impact of higher AUD. Indeed, tradables inflation got a free kick from the rising AUD - imported inflation rose just 0.2%q/q (0.5% over the year), while the domestic component rose 1.5%q/q.


The all-important trimmed mean measure of core inflation also printed above expectations at 0.8%q/q (J.P. Morgan and consensus 0.7%), and 3.2%oya. The alternative weighted median core measure printed in line with expectations at 0.8%q/q. On our forecasts, core inflation will trough near the top of the RBA's target range in the first half of 2010. On the evidence to hand, RBA officials have failed to squeeze inflation from this economy, despite having had the advantage of an extended period of sub-trend GDP growth. This means we are starting the next cyclical upswing in the economy with an uncomfortably high rate of underlying inflation. In this environment, with the inflation outlook also deteriorating, we need to prepare ourselves for what will be an extended tightening cycle.


The next important policy milestone is Governor Glenn Stevens' speech next Thursday, the evening before the RBA releases the November quarterly statement. The statement will include upgrades to both the official growth and inflation forecasts. Based on the hint delivered in last week's Board minutes, we believe the statement will push the medium term core inflation forecast up to 2.75% (at least), from the current 2%. With the Board minutes also indicating that inflation will be accelerating in 2011, the RBA will continue tightening policy through 2010, albeit at a more measured pace than the urgency at which the "emergency" component is being removed.

Please follow this link to pertinent graphs:
http://img.scoop.co.nz/media/pdfs/0910/JPMorgangraphs.doc


ENDS

© Scoop Media

 
 
 
World Headlines

 

Covid: 250 Groups Urge WTO Chief To Ditch Pharma-Friendly Approach And Embrace Vaccine Patent Waiver

by Jake Johnson, staff writer An international coalition of 250 civil society groups on Tuesday urged the head of the World Trade Organization to embrace a temporary suspension of coronavirus vaccine-related patents, warning against pursuit of a voluntary ... More>>

Samoa’s Stunning Election Result: On The Verge Of A New Ruling Party For The First Time In 40 Years

Tamasailau Suaalii Sauni , University of Auckland and Patricia A. O'Brien , Georgetown University Samoan politics is on a knife edge. After the country voted in general elections on April 9, counting so far has resulted in a dead heat between the two ... More>>

Timor-Leste: UN Agencies Support Response In Wake Of Deadly Floods

United Nations agencies in Timor-Leste are supporting response efforts, as floods and landslides left widespread damage across the country, including in the capital, Dili. According to media reports, at least 21 people died in the country and many ... More>>

Focus On: UN SDGs

C40: UN Secretary-General's Remarks To Meeting With Leading Mayors Supported By Cities

UN Secretary-General's remarks to Meeting with Leading Mayors Supported by C40 Cities: “Advancing a Carbon-Neutral, Resilient Recovery for Cities and Nations” 16 April 2021 Thank you for joining me today, and for your commitment and leadership. Cities ... More>>

Awake At Night: S3-Episode 21: There Is Hope

Brazzaville visit to CSI Pilote du Diabete with Health workers at a local government clinic. 2018 - Photo: ©CSI/Dr. Soumya Swaminathan 'When it comes to a pandemic, it really needs global collaboration and solidarity because the pathogens and viruses More>>

UN: Growing Calls For Revamping Development Financing To Ensure Sustainable Global Recovery From COVID-19 Pandemic

Forum to highlight new initiatives to tackle inequalities exacerbated by pandemic With many economies reeling as a result of the COVID-19 pandemic, and as inequalities continue to widen, world leaders will discuss options to unlock concrete investments ... More>>