RBA official talks down importance of upcoming monthly inflation data
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The news: The Reserve Bank’s head of economic analysis Michael Plumb has talked down the importance of the upcoming monthly CPI release, emphasising in a speech on Tuesday morning that the central bank continues to rely largely on the quarterly inflation release.
The context: Plumb delivered his speech on the eve of the much-anticipated January CPI release, amid significant speculation about whether the RBA will be swayed if the data comes in hotter than expected.
He said the RBA would be “closely monitoring the incoming data” to assess how the economy is performing compared to the central bank’s latest forecasts.
“This includes tomorrow’s official CPI data for January,” Plumb said.
Plumb went to great lengths to explain that although the more frequent monthly releases are materially helpful in assessing inflation, “it will take us some time to understand the properties and seasonal patterns of the data”.
Economists and the markets, however, are taking strong signals from the monthly data and will use the read to inform quarterly predictions.
Plumb’s prepared remarks did not refer to the latest developments on tariffs from the US, but did observe that the previous tranche resulted in average tariff rates that were “much lower than was initially projected” and the shocks expected had not eventuated.
He said tariff exemptions “and the rapid reconfiguration of trade flows and supply chains last year helped to mitigate the negative impacts of the increase in trade barriers”.
“More recently, strong trade flows related to the AI and technology boom have also supported activity among some of our major trading partners. For a small open economy like ours, these better global conditions have supported growth in exports and domestic incomes,” he said.
What they said: “While we learn about the monthly data, for a time we will continue to focus on the quarterly data for forecasting and assessing underlying inflationary pressures,” Plumb continued.
“In particular, as you saw in our February forecasts, we continue to forecast the quarterly trimmed mean measure of inflation.”
The source: Reserve Bank speech
