As it contemplates what has been an extraordinarily white knuckle few weeks for the global economy (courtesy of the insanity of sections of the Republican Party), at least one thing the Reserve Bank of Australia Board is unlikely to worry about when it meets in a couple of weeks is domestic inflation.
The September quarter Consumer Price Index figures due out on Wednesday are expected to confirm that, whatever else might be going on the economy, it’s not happening in prices.
If they show, as tipped, that underlying inflation increased by around 0.5 per cent for the quarter, it will mean the nation is heading into the fourth consecutive year in which price pressures have been contained within the 2 to 3 per cent target band set by the central bank.
Since mid-2010, annual growth in underlying inflation has not reached any higher than 2.85 per cent, and has remained stuck around 2.4 per cent for more than a year.
Laudable as this result may be, it is not really remarkable.
In the sweep of time since the recession of the late 80s/early 90s and the establishment of an independent central bank, inflation has been largely well behaved – apart from a few quarters following the introduction of the GST in 2001 and the growing pains caused by the resources boom during 2007 and 2008 (see RBA chart below).
If the RBA is correct in its view that inflation will remain within its target band for at least the next two years, it will mean more than five years of moderate price growth – a record-breaking achievement, exceeding the previous high of four consecutive years from mid-2002 when annual underlying inflation stayed between 2 to 3 per cent.
For a central bank which has as part of its mandate the containment of price pressures, this will be a signal achievement.
It also means that politicians may have to update their rhetoric and ditch the trusty old trope of “household cost of living pressures”.
For all the talk about cost of living pressures, there is little sign of them in the figures.*
* There is an argument to be had about whether the Australian Bureau of Statistics, with its CPI methodology, accurately encapsulates what households spend their money on, but this is a subject for a future post.