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Another beautiful set of numbers

THE inflation figures released on Wednesday surprised a number of analysts with how low they were.

A number of analysts were anticipating that the September quarter figures having been so benign, we were likely to see the producers delaying their price rises till the December quarter.

But it was not to be.

One of the key analysts of this type of data is Dennis Mahoney, chief economist of BNP Paribas.

Mr Mahoney’s view on the figures released was as follows: “As best as I can figure it, and guessing from what Costello said about Treasury's estimate of the underlying rate at close to 2.0 per cent, the wholesale sales tax pass through probably took 0.25ppt off the CPI result of 0.3 per cent so that underlying inflation was 0.5 per cent for an annual 2.1 per cent (i.e. headline plus WST effect added back less petrol price contribution of 0.06 per cent ppts).

“That says the last two underlying quarters have been about 0.55 per cent and 0.5 per cent.Given the economy has slowed, most of 2001 will reflect these 2H00 results more so than the higher trending assumed by the RBA in its November Statement on Monetary Policy.

“If so, annual underlying inflation all but peaks at 2.5 per cent in 4Q01 and not 2.8 per cent as I formerly thought”.

It would seem that the figures suggest bullish times for equities as well as bonds, although it does seem that the market is still worried by downgrades as a result of margins being squeezed (which this CPI result seems to reinforce - although all the tax changes make interpretation slippery).

The only issue that remains therefore is the passing on of this CPI rise through the excises on Fuel and Tobacco, etc. The inflationary impact of that is self-fulfilling as well and should be reviewed.

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