Economists are increasingly confident the worst of the inflationary wave is behind us, but the latest consumer price report, while encouraging, is far from a “mission accomplished” moment for the Reserve Bank.
Maybe we get the long-awaited pause in the punishing rate hikes inflicted on indebted homeowners. But it’s too early to call an end to higher rates, and mortgage holders should prepare for more pain.
Inflation at 6.8 per cent in February is well down from the 7.4 per cent recorded in January, and miles below the 8.4 per cent recorded in the December consumer price index numbers.
But it’s still too high, and multiples of the 2-3 per cent target the Reserve Bank is trying to achieve over time.
The monthly numbers are also volatile.
Most of February’s disinflation came from falling airfares, as Citi chief economist Josh Williamson points out, after the frenzied travelling through the summer holidays slowed as we returned to work. Holiday and accommodation prices are down 20 per cent since December.
So we won’t get a firmer picture of what’s happening to underlying inflation until the March quarter CPI on April 26.
Monetary policymaking is more art than science, and never more so than now.
The country is relying on governor Philip Lowe’s judgment – at least in the six months that remain in his term – to guide the nation out of the inflationary woods without crashing the economy.
Whether this mission will be accomplished will only be known in 18 months’ time.
But a second month of falling inflation is another small step in the right direction.
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