Inflation figures for the September quarter were released at 11.30am today, and they show that the “headline” number for Consumer Price inflation is running at 3.9 % – slightly lower than the 4% in the June quarter, but still far too high. By the time you read this, Henry’s Blog will include a more definitive analysis, including data on “underlying” inflation.
So it’s a no-brainer – rates need to rise, right? Not necessarily. Did you catch the Treasurer in his very precise coaching of Kerry O’Brian and through him the great unwashed on the 7.30 Report. The quotes are not precise but give the general idea.
“My agreement with the governor of the Reserve Bank means monetary policy is based on inflation over the cycle. Inflation needs to be in the range of 2 to 3% over the course of the cycle. Inflation can be above 3% for a time, just as it was below 2% for a time”. (Or words to this effect.)
Unstated but strongly implied was the advice to Glenn Stevens: “Go carefully, young man, go very carefully”.
The Treasurer of course “never comments on future interest rates” nor did he specify whether it is underlying or headline inflation that has to be within the target range over the course of the cycle.
Meanwhile, the esteemed and revered IMF has joined Henry in suggesting interest rates will need to rise – significantly so since its draft report was if tradition is being observed vetted by Treasury in advance of its release. Ditto Access Economics, ditto the odd bank economist – Westpac’s Bill Evans seems to have done a particularly inelegant back-flip – and dear old Frank Gelber who seems to be saying there could be many rate hikes yet. Gadzooks, a man to the right of Henry!
Click here for Henry’s extensive analysis of monetary policy.
And read more at Henry Thornton.