Inflation surprised on the high side at the end of 2013. Underlying inflation was running at an annualised rate of 3% at yearend. Not surprisingly, the RBA has revised up its near-term inflation forecasts and has shifted its policy stance to “neutral”.The RBA has also proposed a number of possible explanations for the CPI surprise. These include: faster than usual passthrough of higher import prices; wider margins; less spare capacity; random statistical “noise”; and slower than usual passthrough of weaker labour cost growth. Some of these explanations look a little weak. Others fit in with our view that thereare upside inflation risks in 2014.
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Commonwealth Bank