Our "All Signal, No Noise" approach
Drives an intelligence service that is succinct and timely, and is highly regarded by our time constrained client base.
Link to the page
MNI US Macro Weekly: Quarterly Hikes Stay In Play Ahead Of CPI
Link to the pageExclusives
Canadian Senator Yuen Pau Woo told MNI U.S. automakers pose a bigger threat to Canada's industry than their Chinese counterparts, and officials are hasty in dismissing potential for the Asian nation to manufacture electric vehicles in Canada.
“We may be talking about the annihilation of an industry or the substantial diminution of the auto industry, because of what the Americans are already doing, not because of what they might do if we were to invite a few Chinese vehicles in,” he said in an interview Thursday.
“It’s in the interest of the incumbents in the industry to avoid that situation," he said. "But at the same time, we need to allow space for other parts of the economy, other industry players to explore new ways of doing things, new directions for the auto industry that are more in line with the future rather than the past.”
After a hearing Thursday where representatives from North American auto and parts makers said China's goal is accessing Canada's market without any assembly lines or jobs beyond car kits, Senator Woo suggested China may at some point look at full-scale production.
CHINESE OVERCAPACITY AND TESLA
“I know people who want that to happen, and who are open to that possibility, are actively in discussions with Chinese manufacturers,” he later told MNI without identifying any specific actors. “That should be an approach we’re taking, rather than assume that it would never happen.”
Prime Minister Mark Carney during a January meeting with Chinese President Xi Jinping allowed 49,000 electric vehicles a year from China or less than 3% of the market. President Donald Trump warned afterwards deeper ties with China would escalate the Canada-U.S. trade war that already includes 50% tariffs on aluminum, steel and autos. Since then Trump hosted a friendly visit with President Xi that avoided new penalties. (See: MNI INTERVIEW:Paused Talks Help Canada In US Trade War-Verheul)
Brian Kingston, head of the Canadian Vehicle Manufacturers' Association that represents Ford, GM and Stellantis, responded to another Senator's question at the hearing by saying China will never build the assembly plants his members have. “I’m deeply skeptical of China being an investor in Canada for numerous reasons, but the first is they have massive overcapacity at home, that is why they are exporting and dumping vehicles around the world,” he said.
The day after Elon Musk said Quebec and Alberta should separate from Canada, Kingston pointed out Tesla is the biggest winner from the new Chinese EV quota. “The government has just given free access to Chinese manufacturers that don’t employ people here, and who’s taking advantage of that quota right now? It is largely Tesla.”
CHINA SHUNS UNION WORKERS?
Senator Woo later in the hearing pressed Kingston about Chinese investment in Canada. The independent British Columbia lawmaker was appointed to the Senate in 2016, and before that led the Asia Pacific Foundation of Canada. Some of his past commentary on China has drawn criticism from human rights groups.
“They want market access, they don’t want to build here,” Kingston told Woo at the hearing, pointing to Europe where China has mostly done kit assembly and not full-scale production. “They aren’t going to come here and build a plant with Unifor unionized labor.”
Flavio Volpe, who advises the government in his role leading the Automotive Parts Manufacturers' Association, backed Kingston's view. It’s better for Canada to create its own market for batteries as the industry shifts to EV rather than relying on imports, he said.
“The domestic market in China this year collapsed by six million," Volpe said. "The objective of Chinese automakers is to find a consumer for their product.”
Oct-09 14:05
One of the main architects of the European Central Bank’s first bond-buying programmes has told MNI the first likely step for the ECB in addressing the selloff in sovereign debt would be to stop running down its own bond portfolio under its quantitative tightening programme, but that market conditions are still not bad enough to prompt action.
Francesco Papadia said the ECB should deploy an escalation ladder of options. While it should be prepared to scale the ladder if necessary, potentially as far as active bond purchases, it should start with the easiest.
“Stopping QT in a neutral way. You just don’t let the portfolio go down and buy what is maturing without any tilt toward any one country or another,” Papadia, director general for market operations at the ECB until 2012 and now a senior fellow at the Bruegel think tank. (See MNI INTERVIEW: ECB Should Halt QT - Bini Smaghi)
If that failed to address the situation, the ECB could then consider “rebalancing” its purchases of maturing debt towards the most affected country – effectively [France],” he said. “They did that in the past and they did not always follow the same proportions exactly.”
Stopping interest rate hikes would be the third step. After that would come making bond purchases under its Transmission Protection Instrument, and finally bond purchases under its Outright Monetary Transactions programme, though this last would be the most difficult, given the requirement for the affected country to be in a fiscal-adjustment programme with the European Commission. (See MNI SOURCES: ECB Likely To Wait Till December Before Next Hike)
FOCUS ON SPREADS, FOR NOW
Papadia says that a further “deepening and broadening” of the current bond market sell-off would be required before the ECB would even take the first step.
“A deepening in France and a broadening to other countries in a worrying way,” he said, adding that “a 20 basis-point spread increase in two weeks is different from 20bp in two days.”
Given that the ECB’s justification for deploying TPI would have to be a disruption of monetary transmission, spreads between the bonds of troubled sovereigns such as France and benchmark bunds would be the first focus, though eventually rises in yields themselves could force action anyway, Papadia said.
"For the time being I would think that the conversation would mostly be about the spread,” he said.
Once the ECB starts on the ladder, it must be ready to escalate, Papadia said.
“When they enter the first phase they would need to be aware that they must be ready to go for the next step if the first one doesn’t work.”
Oct-09 12:48
The AI investment boom has unexpectedly emerged as the predominant inflation risk for the Federal Reserve by fueling massive demand for resources that could last years before productivity gains expand supply, raising the prospect of rates staying higher for longer.
The Fed has already embarked on a tightening path amid resilient growth, above-target underlying inflation and a stable labor market. High oil prices and tariffs pose inflation risks, but limited second-round effects so far suggest those pressures are likely to be short-lived, giving officials flexibility on the pace of hikes. (See: MNI POLICY: Fed In No Hurry But Committed To Taming Inflation)
However, aggressive spending by mega-cap tech companies to build data centers and secure compute capacity could mean monetary policy has to stay tighter for a more extended period, which could eventually weaken the labor market.
A recent paper by Columbia University economist Stijn Van Nieuwerburgh estimated AI infrastructure investment will exceed USD10 trillion from 2025 to 2032, more than 3.6% of GDP and far eclipsing the capex booms associated with railroads and telecom.
NEUTRAL RISING
Strong investment demand pushes up the short-term neutral rate of interest, making current monetary policy relatively more accommodative and forcing the Fed to raise rates simply to maintain a restrictive stance and keep inflation in check.
If markets begin expecting a permanently higher rate of productivity growth, the longer-run neutral rate also rises. The Fed would then need to hold rates higher over the long term rather than rely on productivity as a disinflationary tailwind.
Better-than-expected growth has seen policymakers revising higher their estimates of the longer-term neutral rate, and demand for investment capital has likely lifted the short-term rate even higher, Minneapolis Fed President Neel Kashkari said last week.
"I look at the fact that so much massive investment is going into the data center buildout -- power, water, and all of the infrastructure that goes with it. That's a new demand for investment capital," he said. "If there's a lot more demand for investment capital, all else equal, that's going to push up the neutral rate."
WILL AI BE DISINFLATIONARY?
Fed officials are optimistic that AI could improve productivity over the medium term, and Chairman Kevin Warsh has further argued that the technology will be a significant disinflationary force. But not all of his colleagues are convinced, and even Warsh sees this as having no immediate bearing on policy. (See MNI POLICY: AI Boom Complicates Fed's Path To Lower Rates)
Implementation may be a bumpier, slower road than expected, and there's a risk that AI may not be nearly as transformative as hoped. The diffusion of earlier general-purpose technologies from electricity to the personal computer is hard to discern in productivity, employment or wage data, and the late-1990s surge lasted only four or five years before growth reverted to its usual pace.
A short discussion in the minutes of the September FOMC meeting stated that officials “generally judged that AI-related investments would likely contribute to stronger gains in productivity and potential output in the coming years but they noted that there was substantial uncertainty over the magnitude or timing of the effects."
The boom carries downside risks as well. For one, rising political opposition to data centers could slow the buildout, independent of the technology's promise. And a number of major central banks have warned a sharp fall in the asset valuations that have underpinned the investment boom could trigger market volatility and a sudden drop in consumption -- all of which could pose significant risks to the U.S. economy and beyond.
Oct-09 12:37
You are invited to listen to a livestreamed MNI Connect Video Conference with the Congressional Budget Office, Phillip Swagel.
Details below:
- Speaker: Phillip Swagel, Director of the Congressional Budget Office.
- Topic of discussion: ‘The U.S. Budget and Economic Outlook’
- Date: Thursday, 22nd October 2026, 10 am to 11:30 am ET / 3 pm to 4:30 pm London time.
- This event will be run as a Zoom Webinar and is a public, on-the-record event.
To register please go to: MNI Webcast Registration
Bank of England economists are using proxy metrics to study the impact of AI adoption on productivity on a sector-by-sector basis, with evidence so far suggesting recent gains have been driven by changes in the labour market rather than by new technology.
While a new Office for National Statistics measure of productivity based on hours worked has pointed to an uptick, it does not provide the industry-level-detail key for detecting effects of AI, prompting the economists to seek proxy measures.
So far, the signal is muted, but the UK’s own AI sector, larger than in other European countries, "is the first sector where we see some productivity increases," Sophie Piton, a BOE Research Advisor and also a member of the Centre for Macroeconomics, told MNI.
This would resemble the situation in the U.S., though its AI industry is on a different scale. While a recent Boston Fed discussion suggested that AI is not yet driving overall U.S. productivity growth, the clearest gains so far are also materialising in the tech firms themselves.
EARLY INDICATIONS
BOE Monetary Policy Committee members echo the view that AI is yet to feed through to widespread productivity gains, with Megan Greene saying at an event in Cape Town on Thursday that while it is showing up in investment and "there are some indications that it's boosting productivity growth … it's way too early to make a definitive call on that."
This feeds into a debate over the causes of the recent increase in UK productivity. Jonathan Van Reenen, a former senior economic advisor to the Chancellor, has said this could be driven by higher investment and planning reforms as well as by early AI effects. But former MPC member Michael Saunders says the data suggests a one-off effect due to higher unemployment. (See MNI INTERVIEW: UK Jobless Drive Productivity Rise - Saunders )
So far, the evidence seems to tilt in Saunders' favour.
"When you look at the decomposition and the contribution of GDP or the contribution of employment, you see that this is mostly coming through negative employment,” Piton said.
However, an AI productivity boost may be on its way, if international companies are to be believed. A cross-country survey and analysis by those behind the BOE's Decision Maker Panel found firms in the information and communications technology and administrative sectors expect AI will increase their productivity by 2.8% and 2.5% over the next three years respectively. The average expected boost for companies in all sectors was 0.6%.
In the UK, firms with better management practices are more likely to adopt AI, an ESCoE paper showed, though the pass-through to productivity may lag. (See MNI INTERVIEW: AI Raises Rates Before Boosting Growth - Rachel )
The BOE has not factored in a separate AI productivity boost over its current three-year forecast horizon, noted Greene. Former MPC member Jonathan Haskel, now head of the Office for Budget Responsibility, previously told MNI that a forecast should include "some upside for AI," but assuming a 0.6-percentage-point uplift would be excessive. (See MNI INTERVIEW: AI Boom Doesn't Justify Lower Rates - Haskel)
DATA QUALITY
Analysis of UK productivity has been muddied by quality problems with the official Labour Force Survey, which the ONS is now remodelling. In the meantime, its new hours-worked gauge indicates productivity might be higher than previously thought, as hours worked have trended down steadily for several decades while output per hour worked proved more resilient.
Van Reenen thinks productivity growth has risen to around 1.6% a year since mid-2024, basing his conclusions on administrative data, rather than on the LFS.
Whatever the trends, the BOE will be in a better position to capture them in a timely manner. It previously performed an annual labour market and productivity stock take, but has shifted to rolling analysis with an update included in each quarterly Monetary Policy Report from February, in line with recommendations from former Fed Chair Ben Bernanke.
Oct-09 10:07
Political pressure on the U.S. Census Bureau poses heightened risks to the quality of market-moving indicators such as retail sales and durable goods orders, though important safeguards remain, the bureau’s former Associate Director for Research and Methodology and Chief Scientist told MNI.
Encroachment on decisions and processes by the Trump administration has led to the bureau losing important career leadership and institutional knowledge, said John Abowd, adding that political appointees now have access to data before publication. Until recently, top politically-appointed leaders at statistical agencies have been separated from data until release time, with no direct role in collection or processing of statistical information.
"Politicals will see the number before it's ready for publication," said Abowd, who left the Census Bureau in 2023. "That should not happen."
That raises risks around Census data including indicators such as retail sales, durable goods orders, housing starts and permits, international trade, and business inventories, he said. Abowd noted however that career associate directors, who are non-political appointments, remain in charge of the principal federal economic indicators, while the Bureau of Economic Analysis, a recipient of these indicators for use in the national accounts, is another safeguard and would probably detect any manipulation.
Asked if he has confidence in the reliability of Census data, Abowd said: "I continue to have confidence in the statistics that are produced by the regular production systems at the Census Bureau."
However, former officials have expressed more confidence about other agencies, such as the BLS. (See: MNI INTERVIEW: Ex-BLS Chief - AI Impact On Labor Small So Far)
"It is extremely disheartening to watch this wholesale attack on the statistical system," Abowd said. "It’s a challenging job when it’s adequately funded and reasonably supported. It’s a nightmare of a job when it is starved of funds, without having the mandates to publish removed, and when the incentives for dedicated career staff to stay with the agency are undermined by political efforts to discredit the agency."
NOISE
Additionally, the Department of Commerce's administrative order banning noise infusion, a practice under which small modifications are introduced into published statistics to protect the confidentiality of contributing individuals and businesses, will make it harder to gather useful data about local areas and small populations, Abowd said.
The noise infusion directive will impact the 2030 Census and the American Community Survey, which is used to determine how Congress and federal agencies distribute hundreds of billions of dollars in federal funds each year.
The policy, which also applies to the Bureau of Economic Analysis, leaves both statistical agencies with a choice between releasing statistics with fewer details or not releasing some statistics at all, he said.
"When they are coarsened and suppressed, you're simply not going to get the data that used to be there. You're going to ask a question about a very specific geographic area, and you're not going to get an answer to that,” said Abowd, now at Cornell University. (See MNI INTERVIEW: Mounting BLS Pressure Harmful For Data- Groshen)
To Abowd’s knowledge this issue does not affect any of the primary federal economic indicators, but he said that it could have implications for products used by business such as the Census Business Builder, a suite of services conceived in 2015 that provide selected demographic and economic data tailored to specific types of users. Another potentially affected product, OnTheMap, is a mapping and reporting application and is used by FEMA for emergency management. (See: MNI INTERVIEW: US Data Already Suffering From Underinvestment)
INTEGRITY
The Commerce Department also recently removed language banning political interference from the department's scientific integrity policy, part of a wave of similar changes at federal agencies across the government. Political interference is still illegal, but it would have to be prosecuted by the Justice Department or the Inspector General for Commerce.
The new policy retains references to honesty, objectivity, transparency, and scientific standards, but removes language specifically intended to shield government science from political interference. That applies to all agencies under the Commerce Department, including the Bureau of Economic Analysis.
The Census Bureau did not respond to a request for comment.
Oct-08 14:39
Italy’s Finance Minister Giancarlo Giorgetti will press European Central Bank President Christine Lagarde to clarify her future at the institution during the European finance ministers' meetings in Luxembourg this week, due to concern that uncertainty over how long she will remain in her post is adding to market nerves, Italian government sources told MNI.
Lagarde’s term as president runs until the end of October 2027, but she has repeatedly left open the possibility of leaving early, with reports linking her to a possible role at the World Economic Forum.
Giorgetti worries that uncertainty surrounding Lagarde’s future is making markets more nervous at a time when jitters over France’s fiscal path are hitting bonds issued by other highly indebted nations such as Italy and Belgium, one source said. (See MNI SOURCES: ECB Likely To Wait Till December Before Next Hike)
DELICATE MOMENT
"The request for clarification is linked to the particularly delicate moment Europe is experiencing. Clarity is needed," one of the sources said, noting that in such delicate situations for debt markets small details like gossip or rumours can make a big difference.
The Italian finance minister has already said that it would be good for the ECB president to clarify her position as soon as possible, speaking last week at a press conference to present the government’s next macroeconomic framework, but now sources indicate that he has decided to raise the matter with her personally.
The question of succession has gained urgency since Lagarde asked European Council President Antonio Costa to launch a formal procedure to appoint a replacement for Executive Board member Isabel Schnabel, who will leave the ECB in January to take up a senior role at the International Monetary Fund. The Eurogroup of finance ministers is expected to discussing Schnabel’s replacement.
Former Bank of Spain governor Pablo Hernandez de Cos, now general manager of the Bank for International Settlements and former Dutch central bank governor Klaas Knot are seen as frontrunners to replace Lagarde at the ECB.
An ECB spokesperson declined to comment.
Oct-08 09:36
The Bank of Japan will increase the pace of rate hikes in 2027 should wages and inflation strengthen, but stable conditions will see the Board likely stick to quarterly 25-basis-point rate hikes following December’s highly anticipated increase to 1.5%, former BOJ executive director and chief economist Kazuo Momma told MNI.
“If it happens, the BOJ will need to increase the number of rate hikes, which will send the policy rate to 2.25% or 2.5%, or 3% according to circumstances, to push down inflation,” Momma said, pointing to an unlikely scenario where wages grow between 5.5-6%, above the circa 5% experienced over the last three years. Such moves would indicate stronger underlying CPI inflation above 2%, he argued.
“The change of the policy phase in June resulted in the rate hike in September, meaning that the BOJ has set the pace of rate hikes to once per three months,” Momma said. While predicting the Bank’s hiking pace after March was difficult as prices and the economy shift, a June or July increase to 2% remains likely, he continued, slightly faster than the market's September 2027 expectation.
Momma accurately called the September hike in August and warned the BOJ could move again as soon as December. (See MNI INTERVIEW: Ex-BOJ Momma Sees More Hikes After Sept In 2026)
While the Bank had not declared it had achieved 2% inflation, Governor Kazuo Ueda’s remarks following the September hike suggested it had shifted to a policy stance aimed at stabilising price growth around the target, he argued. (See MNI POLICY: December BOJ Hike In View After September Tankan)
“Ueda’s remarks mean that the bank is getting rid of easy policy. While the BOJ unofficially changed the policy phase in June, the bank didn’t declare it at that time as the bank needed to confirm CPI moves.”
The BOJ's communications will emphasise a continued need to ensure inflation has stabilised around 2%, he added, noting this would entail inflation stably moving around the target for a certain period.
The recent rise in crude-oil prices – higher than July’s forecasts – will also allow the Bank to revise its median core CPI outlook this fiscal year from 2.4% when it updates its Outlook Report following the Oct 29-30 meeting, despite the latest CPI and September Tokyo inflation results landing largely within the BOJ’s predictions, he added.
CORPORATE EXPECTATIONS
The September Tankan showed corporate inflation expectations five years ahead had largely stabilised at 2.5%, down 10bp, while the three-year result held steady at 2.6%.
While stable, Momma noted the levels were still elevated. “If the view moves toward 3%, the BOJ will increase its guard against higher underlying CPI inflation,” Momma argued, noting the Bank had concluded the data failed to show upward price pressure among business-to-business transactions had impacted consumer prices.
STAGFLATION RISKS
A combination of slower growth and stronger prices would challenge the Bank’s strategy, Momma warned. “Should financial conditions be not accommodative, the risk to economy and prices change,” he said, noting this could weaken price pressures.
“But the worsening in the Middle East situation will put upward pressure on crude-oil prices and then increase the upside risk to prices. That’s a very difficult case for the BOJ to manage monetary policy, although I don’t know how the BOJ would do.”
Oct-08 06:17The Bank of Japan will increase the pace of rate hikes in 2027 should wages and inflation strengthen, but stable conditions will see the Board likely stick to quarterly 25-basis-point rate hikes following December’s highly anticipated increase to 1.5%, former BOJ executive director and chief economist Kazuo Momma told MNI.
“If it happens, the BOJ will need to increase the number of rate hikes, which will send the policy rate to 2.25% or 2.5%, or 3% according to circumstances, to push down inflation,” Momma said, pointing to an unlikely scenario where wages grow between 5.5-6%, above the circa 5% experienced over the last three years. Such moves would indicate stronger underlying CPI inflation above 2%, he argued.
“The change of the policy phase in June resulted in the rate hike in September, meaning that the BOJ has set the pace of rate hikes to once per three months,” Momma said. While predicting the Bank’s hiking pace after March was difficult as prices and the economy shift, a June or July increase to 2% remains likely, he continued, slightly faster than the market's September 2027 expectation.
Momma accurately called the September hike in August and warned the BOJ could move again as soon as December. (See MNI INTERVIEW: Ex-BOJ Momma Sees More Hikes After Sept In 2026)
While the Bank had not declared it had achieved 2% inflation, Governor Kazuo Ueda’s remarks following the September hike suggested it had shifted to a policy stance aimed at stabilising price growth around the target, he argued. (See MNI POLICY: December BOJ Hike In View After September Tankan)
“Ueda’s remarks mean that the bank is getting rid of easy policy. While the BOJ unofficially changed the policy phase in June, the bank didn’t declare it at that time as the bank needed to confirm CPI moves.”
The BOJ's communications will emphasise a continued need to ensure inflation has stabilised around 2%, he added, noting this would entail inflation stably moving around the target for a certain period.
The recent rise in crude-oil prices – higher than July’s forecasts – will also allow the Bank to revise its median core CPI outlook this fiscal year from 2.4% when it updates its Outlook Report following the Oct 29-30 meeting, despite the latest CPI and September Tokyo inflation results landing largely within the BOJ’s predictions, he added.
CORPORATE EXPECTATIONS
The September Tankan showed corporate inflation expectations five years ahead had largely stabilised at 2.5%, down 10bp, while the three-year result held steady at 2.6%.
While stable, Momma noted the levels were still elevated. “If the view moves toward 3%, the BOJ will increase its guard against higher underlying CPI inflation,” Momma argued, noting the Bank had concluded the data failed to show upward price pressure among business-to-business transactions had impacted consumer prices.
STAGFLATION RISKS
A combination of slower growth and stronger prices would challenge the Bank’s strategy, Momma warned. “Should financial conditions be not accommodative, the risk to economy and prices change,” he said, noting this could weaken price pressures.
“But the worsening in the Middle East situation will put upward pressure on crude-oil prices and then increase the upside risk to prices. That’s a very difficult case for the BOJ to manage monetary policy, although I don’t know how the BOJ would do.”
Oct-08 06:05
The Reserve Bank of Australia is likely to hold the cash rate at 4.6% this year, unless third-quarter trimmed-mean inflation prints higher than 1% month on month, former RBA economist Justin Fabo told MNI, adding that last week’s 25-basis-point hike was a preemptive move ahead of expected stronger price rises.
“If we had a 1.1% [m/m Q3] trimmed mean, that would be above anyone's nowcast that I've seen and it would be above [the RBA]’s statement forecast,” said Fabo, founder of Antipodean Macro and the RBA’s former head of international financial markets. This means there is a lower probability the Bank will need a further rate hike this year, he said.
Should Q3 trimmed mean due Oct 28 print at 1% m/m, though also a strong result, the Bank would be likely to justify a pause by pointing to September’s 25bp hike to 4.6% as preemptive, he added. (See MNI RBA WATCH: Bullock Says Will Hike More If Needed)
Governor Michele Bullock’s comments at last week’s post-meeting press conference had already acknowledged Q3 inflation would likely land higher than its August forecast, Fabo noted, which drove the market’s dovish reaction.
While Bullock and the Board aimed to convey a "finger-on-the-trigger" mentality, they would take a softer, data-driven approach, he continued. "November, with a full forecast update, and probably a pretty strong Q3 inflation number, I think a 30% chance is right," he said, highlighting market pricing for the Nov. 3 meeting.
"It's probably roughly the right reaction from markets to be not sure that they'll need to go again before the end of the year." RBA overnight index swaps currently assign an 18% chance for a hike at the December meeting.
LABOUR & INFLATION
Fabo said the RBA would also keenly watch the labour market, housing and services inflation to judge whether a further hike was justified, and warned against reading too much into August's monthly inflation results.
"You've got to be wary about some of that volatility in those numbers, but there's still there's still a lot of information in the 87 categories when you pull it all apart," he noted, adding that August's results pointed to stronger Q3 trimmed mean despite the 0.2% m/m growth.
The next unemployment read – due Oct 15 – will also either confirm the prior month's deterioration to 4.6% was an outlier, or show further weakness, which will make additional hikes more problematic, he argued. However, he warned official and private job ad data were mixed, pointing to the recent ANZ-Indeed Australian Job Ads result, which posted a further 2.2% m/m rise in September, leaving the series 12.9% higher over the year. (See chart)
The RBA will need more information to make an informed judgement on the labour market, he added. "It's not always just about one number and certain thresholds. A 1% trimmed mean would be uncomfortable, but I'm not convinced at the moment it would tip them over the edge."
High frequency price data alongside confidence indicators also look weak, he added, noting, however, that inflation could still be feeding into the real economy with a lag. "The question is just how big that flow and effect is going to be," he said, noting this concern could fuel a softer approach among board members. "But the problem is that the hard data on inflation, which is the last thing to move, is still looking really uncomfortable."
Fabo in August predicted September's hike, saying that the RBA would want to front load increases ahead of higher inflation. (See MNI INTERVIEW: September Hike Possible - Ex RBA's Fabo)
HOUSING MARKET
Housing market weakness could also translate to lower construction costs as builders cut prices to increase demand despite rising overheads, he argued, noting housing was highly correlated to trimmed-mean inflation, while advertised rents had also appeared to stabilise.
"If that, combined with the weaker housing [market], starts to roll over a bit, that can give the board some confidence at least that they don't need to do anything with rates," he added. "It's still mixed on inflation, but the housing stuff is getting a bit more interesting again."
Oct-08 01:27About
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
