March CPI figures

[Knobby22]

Inflation this quarter of 0.1% So much for the bears!
This bull run appears to have plenty of steam in it.

MARCH QTR KEY FIGURES


Dec Qtr 2006
to Mar Qtr 2007 Mar Qtr 2006
to Mar Qtr 2007
Weighted average of eight capital cities % change % change

--------------------------------------------------------------------------------

Food -2.3 4.6
Alcohol and tobacco 0.9 3.1
Clothing and footwear -0.4 0.2
Housing 1.0 3.5
Household contents and services -0.9 1.4
Health 3.5 4.4
Transportation 0.7 0.5
Communication 0.2 1.4
Recreation -0.7 1.1
Education 5.0 4.2
Financial and insurance services -0.2 1.8
All groups 0.1 2.4
All groups excluding Housing and Financial and insurance services -0.1 2.3

--------------------------------------------------------------------------------

 

[Buffettology]

I agree, good figures for the bulls. Looks like no rate rise next month. This bull will probably continue until the end of the year, perhaps with a minor correction along the way.

 

[Buffettology]

I agree, good figures for the bulls. Looks like no rate rise next month. This bull will probably continue until the end of the year, perhaps with a minor correction along the way.

One thing though, is the federal fiscal policy direction in an election year. Could stimulate some IR rise to counter-act any Governmental fiscal expansion. Though I doubt it. Just something to think about.

 

[Knobby22]

There is a bit of a worry that we can thank fruit for the low inflation, now we are losing fruit trees and farmland to the drought, prices can only go the other way. And you are right B. the pollies will spend it.

 

[Buffettology]

There is a bit of a worry that we can thank fruit for the low inflation, now we are losing fruit trees and farmland to the drought, prices can only go the other way. And you are right B. the pollies will spend it.

Yeah, that too K. I was reading about that also, but the drought is only expected to get better from my understanding. Look at StGeorge Bank Economic Outlook.

Further, its not the drought, but the fact that fruit has been picked now, and is out of season. This is meant to mean an apparent increase in price. Though, not sure how big of a deal that really is on the CPI basket.

Fiscal policy however, is subject also to the crowding out effect, which means that its a far more blunt tool than monetary policy. Therefore, I would think that the effects of last years rate rises will be enough alone to counteract any Government fiscal expansion (at least in the short-term).

 

[wayneL]

A rant from The Daily reckoning re CPI

http://www.dailyreckoning.com.au/inflation-data-not-useful-without-food-fuel-prices/2007/04/24/

Inflation Data Not Useful Without Food, Fuel Prices
Posted by Dan Denning on Apr 24th, 2007

How pathetic has the financial world become when we await with tense anticipation the latest figures on consumer price inflation from the Reserve Bank of Australia? Of course the figures will determine if the RBA raises rates. This affects the local currency and the appetite for local assets. But does the RBA even accurately calculate inflation?

The Banks uses what it calls a “trimmed mean.” In a research paper published on its site, it explains that, The trimmed mean will be affected even by elements which are ‘excluded’ because their magnitude will determine the location of the centre of the ordered distribution, but will be less affected by outliers than published inflation. In theory, the weighted median is the measure least likely to be affected by outlying price movements.”

What good is a theoretical measure of inflation that strips out those things (like food and energy) that are actually rising in price? Statisticians, believing that the economy ideally exists in a state of equilibrium, like to eliminate ‘outliers,’ events that limit the usefulness of their inflation models.

Models, though, are only useful if they have both explanatory and predictive power. Inflation models which diminish the importance of regular (but unpredictable) spikes in prices are not useful models. It’s not the data the RBA should be getting rid of, it’s the model.

But that would be admitting that the Central Bank is ignorant of what really causes inflation: an increase in money supply. True, news and events- like a drought or a cyclone-can cause particular goods or services to rise in price as they become less available. But inflation is a monetary phenomenon. And like everything else, it shows up first in the margins, in the things that you are most likely to find expensive on a day-to-day basis.

No one notices that collectable figurines are suddenly more expensive. Or electric light bulbs. Or woolen slippers. You notice the rising prices of things you use like food and energy. To strip those out the rising cost of things you actually use from the inflation calculation renders the whole metric useless and limp, which is probably the entire point anyway.

 

[YChromozome]

In the paper today :

"he headline rate will go lower. You will see a headline rate next quarter which will be below 2 percent - your next through-the-year CPI will probably have a 1 in front of it," Mr Costello said.

Is Mr Costello simply being cocky and making the most of the "good economic management bandwagon" or is he hinting that the economy is going to slow very fast and we could be in recession before we know it? With a 1 in front of it the RBA would be looking at lowering rates to prevent the economy falling into recession wouldn't it? I guess it would depend on the weighted mean.

 

[clowboy]

Baloney,

Inflation at 2.1%.

Uhuh.

Thats why my food bill is up 20% this year, or people rent is going up 15% per 6 months.

Statistics - You can prove anything with them.

 

[Buffettology]

wayneL, that is true, but anyone can nitpick any arguement. Fact is, CPI basket has been used to dictate inflation figures for years, and monetary policy has been adjusted accordingly. Since the RBA started targeting inflation (91 I beleive), monetary policy has been VERY effective at macro-economic control and stability. So much so, that fiscal policy has practically gone out the door.

YChromozome, the Costello comment is as bad as the Coalitions promise to "keep interest raters low" last election.

The target rate of inflation is 2-3%, so anything below 2 would be a worry.

 

[YOUNG_TRADER]

Statistics - You can prove anything with them.

75% of people would agree with that :