Disinflation, if you can keep it

The RBA versus the rest

It was a big week for the disinflation story in both the US and Australia this week. The US CPI disappointed market expectations for a more aggressive pace of disinflation on the headline measure, with a higher-than-expected print of 0.3% m/m and 3.4% y/y compared to 3.1% y/y in November. But the exclusions-based and statistical core measures continued to moderate at an annual if not a monthly rate.

The ex-shelter measure highlighted by those in the dovish monetarist camp came in higher at 1.9% y/y compared to 1.4% y/y in November, but still broadly consistent with the Fed’s inflation target on a PCE-basis. Kevin Erdmann is still encouraged about the prospects for further disinflation in the shelter component.