Oh … the thing about inflation expectations is a central bank does not want them to become 'unanchored'
I've covered this before:
- The argument is that inflation expectations can become self-fulfilling.
- I think its more relevant during times of increasing inflation - people see inflation rising so they tend to buy more quickly, thus prompting prices to rise faster.
People expect faster inflation (i.e. its 'unanchored' ... rising quickly) - On the flipside, if inflation is either very low or in deflation (i.e. general falling prices), people hold off purchasing 'cause there is no rush if prices are falling, and again the argument is this behaviour can feed on itself and grow as a problem.
- People expect falling prices to fall harder ('unanchored')
But … at 3.1% expectations I don't think the RBA will be too fussed. The target band is, after all, 2 to 3%. Something to watch if these keep on sliding though. It'd be another reason the RBA had to cut. Not there yet though.
