This leads to the obvious question, what is the threshold print that would yield a cut in official interest rates. As I was driving home, I was listening to a commentator who opined that a quarterly print of 0.6 or lower would be necessary.
When I look at the data, I think there is little more room than that. If you look at the last four quarters of the average of the trimmed mean and weighted median, the first two were a print of 0.8 per cent. The third was a print of 0.4. The last quarter was a print of 0.55.
In rough terms, a quarterly print of 0.8 for the first quarter of 2012 would leave the annual rate largely unchanged at around 2.6 per cent (because the lapsing quarter would be the same as the new quarter). For this reason, I suspect the threshold is a quarterly print of 0.8 or lower, even though a print of 0.8 per cent represents an annualised rate of 3.2 per cent, which is above the target band.
I suspect a quarterly print of 0.9 (that is to say, 3.6 per cent annualised) would be a bridge too far for the RBA. Although it would only see the annual print increase by 0.1 percentage points, it would suggest an inflation problem may be lurking in the pipeline.
One of the things I struggled with in reading the RBA statement was trying Derrida-like to deconstruct how much of a nudge and a wink it gave to a May cut. My conclusion was a fairly big nudge with a fully fake eyelash wink. This is why I think a Q1-2012 core quarterly growth print of 0.8% or lower is likely to see a rate cut. Without yesterday’s nudge and a wink, I would have only thought it likely with a print of 0.5% or lower.
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