CPI Data

The CPI figures released yesterday came in lower than expected, with the underlying CPI coming in at 0.55%, significantly lower than the expected 0.7%. The headline inflation came in as expected, with 0.7% in Q3 and 2.8%yoy, which is notably below the RBA’s topside target of 3%. Prior to the announcement, markets had forecasted around a 50% chance of a rise, however in early trading this morning, this has dropped to around 15%. We believe that this is an over reaction, as the RBA will be looking to the medium term for its policy position. The Bank has a history of surprising the market, as demonstrated last month and at the initial tightening period. We are expecting a 40%-50% chance of a hike next Tuesday.

The latest Bloomberg survey consensus sees most economists predicting the RBA to hold next week, but to raise the cash rate in December. The median consensus is for a peak cash rate of 5.5% by Q3 2011.

In other news, the Wall Street Journal reported that the FED was likely to ‘only’ purchase a few hundred billion dollars of US Treasuries in next weeks meeting. This raised concerns that (lack of) Quantitative Easing measures will not be enough to support a recovery, and as a result the markets were in the red throughout the session.

No news in Australia today, however the Bank of Japan will announce its policy decision this afternoon. Tonight will see US jobless claims, Euro zone Confidence and German Unemployment data released