Working Papers

Core Inflation

The December quarter CPI to be released on Wednesday is seen at 0.4% q/q and 2% y/y, according to Friday’s Reuters poll.  This is somewhat higher than the 0.1% q/q and 1.7% y/y implied by the TD-MI inflation gauge. 

The trimmed mean is seen at 0.6% q/q and a steady 3.2% y/y.  The weighted median is seen at 0.6% q/q and 3.5% y/y, down from 3.8% y/y in the previous quarter.  It is noteworthy that despite a near two percentage point increase in the unemployment rate, core inflation was not reduced to an annual rate consistent with the RBA’s 2-3% target range during the recent economic downturn.

posted on 25 January 2010 by skirchner in CPI, Economics, Financial Markets, Monetary Policy

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All of which points to the stupidity of continuing to build school halls when the same workers could be building houses. If higher unemployment isn’t helping moderate inflation, it suggests that the bottlenecks are in subsets of skilled workers rather than workers at large. Maybe this means that re-regulation of the unskilled labour market (eg retail, hospitality) through ‘award modernisation’ is not as harmful as Fair Work Australia imposing compulsory arbitration in mining agreements or continued barriers to the health professions.

Posted by .(JavaScript must be enabled to view this email address)  on  01/25  at  11:12 AM

But if the China wants to build vast empty cities with Aussie iron, thus putting a rocket under our resources sector through the worst global downturn in 70 years, that’s all fine and nothing to worry about.

It seems stimulus is only bad if it happens in Australia or the US.  If it happens in China the results are always benign.  Indeed we should be raising rates in anticipation of even stronger Chinese growth in the future.

Why do different rules apply to China?

P.S. PPI down 0.4% in Q4 and 1.5% y/y

Posted by .(JavaScript must be enabled to view this email address)  on  01/25  at  12:52 PM

Wow, I’ve looked at the figures and you guys do have an inflation problem. 

What is with all the economists over there talking about inflation being low?

And carbonsink, PPI growth is not a good indicator of inflation.  Productivity adjusted wage growth and trimmed measures of consumer price growth are preferable.

Posted by Matt Nolan  on  01/28  at  11:00 AM

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