Michael Pascoe writes:

Consensus can be a strange beast – for
example the wave of economic commentary saying yesterday’s wage cost index was
nothing to worry about. One market economist after another has chimed in with
the line that the annual wages inflation of 4.1% wouldn’t worry the RBA
and that was the line being trotted out in Parliament by Cossie & Co as

It wouldn’t worry the RBA if that was what
wages were actually doing now, or if they believed that was what wages will do.
That 4.1 figure is rather old history – such statistics are the view you get in
the rear-view mirror and the September and December quarters of last year are
now a long way back.

The most recent past, the June quarter, was
up by 1.1% – about 4.5%
annualised, a figure that at least one economist says would worry the RBA.
Furthermore, the consistent commentary coming through the current profit
reporting season is one of rising costs.

What we’re now caught in is an interesting
tussle between skills shortages and the federal government’s IR changes.
Cossie yesterday was proudly pointing
the wages figures as proof that WorkChoices wasn’t driving wages down –
but in the privacy of his own office, he’ll be hoping they will start
least holding them back.

The ability of the herd to sometimes see
the glass half full rather than half empty was also demonstrated in the US
overnight with the favourable reaction to a core inflation figure of 0.2%.
That was nicely skewered by Macquarie Bank economist Mark Tierney in his morning
note to clients. In part:

There is no better commentary on the changing sentiment in
US markets than the reaction to the July CPI data.
After a run of 0.3% monthly increases, the fact that core
inflation rose by “just” 0.2% in July means one thing: nothing. But for
financial markets, it was welcomed with a sigh of relief.

An examination of the details of the CPI will not allay the
concerns of the FOMC. Inflationary pressures remained high, as shown by the
ongoing surge in the median inflation rate. Any change in trend is confined to
just a handful of sectors.

Tierney says the US
economy is slowing and the Fed is pausing – but the US is not
out of the woods on inflation either.