Latest CPI data isn’t as promising as you might think

[pedrito]

I’ll preface this by saying I’m generally a bit of a pessimist (although I prefer to call myself a realist).

With the latest quarterly data release, we’ve seen CPI drop to 4.1% YoY for the December quarter. This is obviously good news and is a 1.3% drop from the previous quarter.

On top of this, the 2023 Q4 growth is down to 0.6%, compared to the 1.9% growth in 2022 Q4.

This all looks great at face value, but if you look a little deeper, it’s not actually a good news story. I think it’s the opposite.

Since 2000, the pre-Covid average for Q4 CPI change is 0.4%, which is 0.2% less than what we’ve just had.

So while CPI is returning to a more reasonable level than the last couple of years, the quarterly change is still higher than the long term average. This is despite the rate hikes we’ve seen. Q3 last year was also higher than the long term Q3 average.

If Q1 this year is also above the long term average (0.6%), then I would say this indicates that inflation is persistent and will not return to the target range of 2-3% without further action from either the government or the RBA.

Interesting times still ahead, and I’m not holding my breath for a rate cut.

 

[lindseym1013]

@pedrito 0.6% a quarter is 2.4% annualized which is exactly where the RBA wants it. So you’re right that rate cuts are unlikely if inflation is where the rba wants it.

Your only argument that it’s bad is it was lower before, forgetting that those time periods were “too low” and the rba was trying to stimulate the economy with low rates.

 

[pedrito]

@lindseym1013 Yes, if every quarter is 0.6%, then annualized it’s approximately 2.4% (it’s actually 2.42% due to compounding…).

But since you didn’t read the rest of my post, every quarter isn’t the same, and historically Q4 is the lowest percentage change.

Q3 2023 was 1.2%, the longer term average is 0.9%. Q2 2023 was 0.8%, the longer term average is 0.7%.

If we’re lucky, we’ll be scraping the very top of the target range. And if that’s the case, why would the RBA drop rates? That’s my point.

 

[lindseym1013]

@pedrito Unfortunately I did read all of your useless rant.

Inflation is dropping, from 1.9% a year ago to 0.6%. But brain dead to say that’s not an improvement

 

[pedrito]

@lindseym1013 Damn. Maybe you need to work on your self control then, because no one forced you to read it lmao.

I also didn’t say it’s not an improvement. I said it’s not enough of an improvement.

 

[lindseym1013]

@pedrito Yeah which is why everyone’s giving you shit, catch up

 

[pedrito]

@lindseym1013 checks comments

By everyone, do you mean you?

 

[lindseym1013]

@pedrito How many are agreeing with you?

 

[sabby54]

@pedrito You’re fighting a straw man there. Who is saying the RBA is going to drop rates?

 

[pedrito]

@sabby54 It’s the broadly held consensus that rates will be cut this year. It’s spruiked on this sub on a regular basis as well as by the media and economists.