Michael Pascoe writes:



Despite a
scary 11-year-high headline number and the welter of economic and market opinion
ahead of it, there’s nothing in this morning’s June quarter Consumer Price Index
figures to justify an interest rate rise next month.

The headline CPI rise
of 1.6%
for the quarter and 4% for the year is worse than the tipsters were
forecasting, but the underlying numbers are actually better than they would have
reasonably expected. Fuel and fruit each contributed 50 of the 160 basis point
rise – strip them out (as the RBA does) and you’re left with a 0.9% increase
which is a notch above the March quarter.

Macquarie Bank’s Rory
Robertson is again looking smarter than the average economist thanks to the note
he sent to clients yesterday making the case that the verdict from next week’s
RBA board meeting is too close to call, instead of the sure thing most
economists were tipping. Robertson bags his peers by suggesting many are just
playing catch-up after failing to predict the May rate rise and are thus jumping
the August gun. Wrote Robertson:

The CPI details that matter most will be published on the RBA’s
website somewhere near 12.30/1pm. If the RBA’s “weighted median” and “trimmed
mean” measures again print at 0.7-0.8% in Q2 (or higher), policymakers very
likely will find another hike irresistible, as many have forecast. But anything
lower – suggesting little new to worry about on the (trend) inflation front –
may yet leave the RBA waiting and watching for at least another
month.

The RBA update came in on Crikey’s deadline, at
0.9%.

However, what commentary such as The
Smage
and the immediate News.com.au stuff overlooks is that the RBA
really doesn’t care about the price of bananas (which accounted for most of
fruit’s big rise) as it knows they will come down with the new crop.

The
RBA also makes allowance for rising petrol prices acting on the economy rather
like an interest rate rise – it takes money out of pockets and reduces demand.
The petrol price by itself matters only about as much as bananas.

What
does matter is any sign that petrol prices are being passed on by businesses in
the costs of other goods – and there’s a bit of evidence of that in the CPI
numbers today.

The RBA could still lift rates next week. The danger is
that the hype that’s been building ahead of the meeting could almost pressure
the bank into moving, all other things being equal, as it wouldn’t want to
appear weak for the departing Governor’s last meeting.