Inflation still fading. Hey, hyperinflationists and gold bugs, those cost pressures you all reckon will be caused by quantitative easing and other government spending are still missing in action. Gold suffered its second big fall in a week overnight. Inflation is still falling (as we found out last week in our September consumer price data). And the Organisation for Economic Cooperation and Development (OECD) said overnight that the annual rate of inflation in its 34 members fell to 0.4% in the year to September, from 0.6% in August, well below the 2.0% level that most central bankers in developed economies see as being consistent with healthy economic growth.

Energy prices continued to fall (by an annual 12.4% in the year to September, compared with the 10.2% drop in August. Food price inflation remained stable at 1.4% and core inflation (not food or energy) rose to an annual 1.8% in September from 1.7%. That’s still too low for central banks. In fact the OECD’s figures suggest that the fresh stimulus measures (extra spending and interest rate cuts) enacted by central banks around the world since late last (European Central Bank, Sweden, and the expansion by the Bank of Japan, People’s Bank of China, the Bank of India, and Australia) year has yet to achieve its main goal — ending the risk of a slide into deflation, although the plunge in oil and gas prices can explain much of the weakness. –– Glenn Dyer

Rate rise … no. Back in late January, News Corp columnist Terry McCrann got the “nod” from someone that the Reserve Bank was going to cut rates at the first meeting of the year on the first Tuesday in February. That was after it appeared the market was banking on there being no rate cut. There was, and McCrann’s column helped change market perceptions. In May, Melbourne Age economic editor Peter Martin got a similar nod from someone and forecast that the RBA would cut rates in June, which it did. Martin’s story also helped change market perceptions. On the eve of yesterday’s Melbourne Cup meeting of the central bank’s board in Melbourne, there was no such obvious leak to either writer (or anyone else) — or was there?

In fact, Peter Martin wrote on the Fairfax Media website overnight Sunday and in The Age and SMH on Monday morning that the RBA board was flying blind:

“Nobody knows what the Reserve Bank board will do on Tuesday, for the very simple reason that the board itself doesn’t know. While it’s always technically true that the board’s decisions are made by those sitting around the table, most of the time they go into the meeting having a fair idea of what they’ll decide. Not this time. For once, every good argument for cutting rates is balanced by a good one for staying put. If I were having a bet on the outcome, I would make it a small one.”

— Glenn Dyer

Cows beat All Blacks. The great All Black tour of triumph continues under the Long White Shroud across the Tasman, but while the celebration for the World Cup win go on, with over 60,000 people cramming the streets of Auckland this morning to welcome home the All Blacks, grim reality has returned to the country’s most important business — milk making. Milk prices fell for a second straight global auction on Tuesday as the nascent recovery of the global dairy market ground to a halt. The price of whole milk powder, New Zealand’s major export, fell 7.4%, to an average price of US$2453 a tonne at the fortnightly auction held by the Fonterra Co-Operative, the world’s biggest dairy exporter. That was after a fall of 3.1% in the previous fortnightly auction. That in turn was after a succession of rises over eight weeks brought prices surge more than 52% and seemingly break the long slide that had gone on for more than a year. This is not the sort of news the big four Australian banks want to read on a Wednesday morning with their total exposure to Kiwi cow farmers of around $30 billion. — Glenn Dyer

Peter Fray

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