RBA to Enhance Inflation Reporting with Monthly Data
The Reserve Bank of Australia (RBA) is set to receive detailed monthly insights into inflation trends, which may expedite key interest rate decisions. Recently, the central bank surprised many by keeping the cash rate unchanged, with RBA Governor Michele Bullock highlighting challenges surrounding current monthly inflation reports as a significant factor in this decision.
Currently, the Australian Bureau of Statistics (ABS) provides both monthly and quarterly inflation data. While the quarterly Consumer Price Index (CPI) is comprehensive, reflecting the price shifts across a range of goods and services, the monthly data lacks completeness. It only covers 66 to 77 per cent of the CPI basket, with varying components included each month, making it difficult for the RBA to gauge inflation momentum.
Beginning November 26, the ABS will roll out a more comprehensive monthly inflation report, aligning Australia with nearly all member countries of the OECD in terms of inflation data frequency. This shift aims to give the RBA a clearer understanding of inflation dynamics, as Bullock underscored the limitations posed by the current quarterly assessment.
In May, the monthly CPI reported headline inflation at 2.1 per cent and trimmed mean inflation at 2.4 per cent. Comparatively, the March quarterly CPI indicated inflation at 2.4 per cent, neatly fitting within the RBA’s target range of 2 to 3 per cent.
To facilitate this transition, the ABS will receive $156.7 million, intended for data gathering and IT infrastructure improvements, enabling it to report a full monthly inflation report for the first time. Even with this development, the ABS will continue publishing the quarterly report for at least the next 18 months.
Governor Bullock reiterated the importance of obtaining these readings, noting the inadequate frequency of current data. "We only get four readings a year; it’s very challenging to assess inflation momentum on such limited data,” she remarked, adding that other nations with monthly CPIs gain a more nuanced view of inflation trends.
The RBA will wait for further confirmation from the upcoming quarterly CPI on July 30 to determine the ongoing trajectory of inflation. Bullock indicated that decisions regarding interest rates would be reconsidered in August, factoring in the new data.
All major banks anticipate a rate cut in August, particularly following a rise in the unemployment rate to 4.3 per cent in June, up from 4.1 per cent in May. Although employment numbers saw a slight increase, the number of unemployed individuals rose significantly, suggesting further economic implications.
As Australia prepares for this important shift in data reporting, financial institutions and markets will keenly observe forthcoming monthly CPI figures for a clearer picture of the country’s inflation landscape.
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