A severe commentary

I don’t place much weight on criticisms of forecasting errors. If someone is any good at forecasting the economy, they would be fabulously rich through trading on their own account rather than working in a central bank.

The fact that Reserve Banks can’t forecast with any greater accuracy than anybody else is a bit of an indictment considering they have inside knowledge of the future course of monetary policy.

By the way, I wrote my masters sub thesis on official forecasting errors.

croaking cassandra

Plenty of commentaries have remarked on the very low inflation numbers out this morning.

None (that I have seen) has highlighted what a severe commentary these numbers are on the Reserve Bank’s conduct of monetary policy over the last few years.

Reciting the history in numbers gets a little repetitive, but:
• December 2009 was the last time the sectoral factor model measure of core inflation was at or above the target midpoint (2 per cent)
• Annual non-tradables inflation has been lower than at present only briefly, in 2001, when the inflation target itself was 0.5 percentage points lower than it is now.
• Non-tradables inflation is only as high as it is because of the large contribution being made by tobacco tax increases (which aren’t “inflation” in any meaningful sense).
• Even with the rebound in petrol prices, CPI inflation ex tobacco was -0.1 over the last year…

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