If people vote with their pocketbooks, and their pocketbooks are considerably lighter come a November interest rate rise…well…you do the math.
Higher interest rates hit people where it hurts…right down on the bottom line. But yesterday’s data from the Australian Bureau of Statistics suggests that the Reserve Bank is highly likely to raise interest rates again to try and cool the Aussie economy down. When inflation rises at the fastest clip in 16 years, what else can be done?
According to the Associated Press, “The weighted median measure, which strips out the most volatile price changes and measures underlying inflation, rose 3.1 percent from a year ago and 1 percent from the previous quarter.” It was another new high of sorts.
That’s saying something. Official measures of inflation tend to strip out precisely those things going up in price, as if it were more accurate. But a closer look at the ABS data shows that credit, energy, and fuel, and food are all getting more expensive in Australia.
Here’s how the ABS put it in its release, “Significant contributors to the increase this quarter were fruit (+9.6%), vegetables (+7.9%), deposit and loan facilities (+2.2%), rents (+1.6%), other financial services (+2.3%), house purchase (+1.0%), electricity (+4.3%), overseas holiday travel and accommodation (+4.2%), property rates and charges (+4.5%), water and sewerage (+5.5%), domestic holiday travel and accommodation (+1.8%) and other motoring charges (+2.6%).”
The Aussie dollar immediately rallied on the news, anticipating a higher yield spread between itself and the Japanese yen and the US dollar. This is one of the major components of Aussie dollar strength- the yield differential. The others are the commodity bull market, which creates demand for Aussie dollars, and the government’s surplus, which compared to the fiscal policy of other Anglo Saxon countries, looks downright prudent.
The Daily Reckoning Australia