The Week Ahead: The Long-Awaited CPI

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By Greg Peel

For months now economists had been suggesting the RBA would keep monetary policy on hold at least until the release of the second quarter consumer price index. Were that figure to be exceptionally high, then the RBA would be forced to hike once more despite clear evidence of slowing in the Australian economy. Well the CPI is due out on Wednesday, so its crunch time.

However, the ranks of economists believing a rate hike is likely has now thinned considerably. One might say there are four reasons why consensus has swung to a continuing “on hold” position: (1) recent data have suggested the Australian economy is slowing faster than even the RBA anticipated; (2) in the statement accompanying the last “unchanged” rate decision, and the subsequent minutes to the meeting, the RBA acknowledged that while high fuel prices were pushing up inflation, those high prices were also acting as a constraint on economic growth; (3) Australian banks have had another series of independent lending rate rises, which acts as a proxy to an interim rate increase anyway; and (4) the oil price has fell around US$18/bbl last week. The last point ignores the potential volatility of the oil price, but it can’t hurt.

On that basis, the CPI would need to be a real shocker, one presumes, for the RBA to contemplate another rate rise to a level that would likely push many homes and businesses over the edge. The central bank is anticipating a strong move in the CPI which it may well take in its stride. Consensus is for around a 1.2% increase in the second quarter to 4.3% annual, while the core is expected to rise 1.1% to 4.4% annual.

We get a precursor on Monday, with the release of the second quarter producer price index. A big jump in the PPI would not bode well for the CPI, unless retailers have still been able to wear pain in their margins. Monday also sees June new vehicle sales.

Wednesday is the CPI and July skilled vacancies, and Thursday brings the NAB second quarter business confidence measure to end what is otherwise a quiet week for data.

The US is a bit busier, starting with June leading economic indicators on Monday. Tuesday is the Richmond Fed index of activity for June, along with the May house price index. Wednesday sees the release of the Fed’s Beige Book for June – a collection of economic surveys across the country – while Thursday brings June existing home sales and the weekly jobless claims data.

Friday is June durable goods, June new home sales and the Michigan University measure of consumer confidence for July.

Elsewhere New Zealand makes a rate decision on Thursday – could it be the first rate cut after a long series of hikes as the NZ economy battles recession? – while Japan releases its second quarter GDP and June CPI on Friday and the UK learns second quarter GDP as well.

On the local stock front the quarterly production reports from the resources sector continue. This week includes BHP Billiton ((BHP)), Newcrest ((NCM)) and Santos ((STO)). Macquarie Group ((MQG)) will also hold its first annual general meeting under new boss Nick Moore. Check the FNArena calendar for details.

Also note the first trickle of year-end or interim results begin this week, with the season accelerating in August.

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