Comments: How big a rate cut do we need to get moving?

Inflation figures for May are just out. Although CPI stayed unchanged below target, RPIX fell.

Now that we’ve passed the big inflation months for the year it’s unlikely there will be any shocks in the figures for the rest of the year. Plugging in average monthly values for RPIX only takes us to a high of 2.4% in Sept. then back towards 2.0% by the end of the year.

The big question now is how retailers will behave in the July sales. Are they loaded with stock that they’ll have to dump at low prices or have they seen this slowdown coming, unlike January?

Mervyn King gave an interesting speech yesterday:
http://www.bankofengland.co.uk/publications/speeches/2005/speech248.pdf

In one of his Maradona-style head-fakes he tried to confuse us with a cricket analogy. But I couldn’t see any sign of a swerve towards rate cuts. My guess is that the August inflation report will show inflation staying close to target with no justification for a cut. It’s interesting that he’s ignoring the cries of retailers and pinning his hopes on services - or the nail-decorating industry, as I like to call it. Oh that we’ve come to this.

Also, with the dollar rising and the oil price staying high it’s not clear why retail prices should fall anyway, even with a retail slowdown.

Finally, another governor gave a speech today – Ian Macfarlane of the RBA on “Global Influences on the Australian Economy“: http://www.rba.gov.au/Speeches/2005/sp_gov_140605.html

It’s interesting he makes the point twice that we’re at an “early stage of the global expansion”. Let’s hope so.

Posted by David Sandiford at June 14, 2005 11:42 AM