Shock news today over the CPI figures. Surprisingly low, mainly due to the segments "Food and non alcoholic beverages" and "Recreation and Culture" (which both experienced drops of over 2% for the quarter)
Pundits are now factoring a cut of 0.25% at the May Reserve Bank Meeting with a 100% probability
However, looking at the raw figures from the ABS, the biggest drop (of over 30%) was in Fruit products.
This strikes me as a movement to normal prices after the temporary effect of the Queensland Floods/Hurricane of 2010/2011 (which elevated fruit prices in 2011).
The "Recreation and Culture" drop was mainly caused by international and domestic travel prices effects (probably due to the increase in the Australian dollar and the fact the rest of the world is in the toilet)
So in my opinion, this low number could be construed as just a return to equilibrium. I wonder if th Reserve will see it that way.
Anyway, according to my model, I still have the Reserve holding rates steady in May. There will be further updates as we get closer to the meeting date however. Things change quickly in Finance after all.
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