Tuesday, 4 February 2014

Inflation / disinflation: Australia versus Korea

I always like to read the comments from the Reserve Bank of Australia.  They tend to say it how it is rather than add multiple pages of disclosures. The key comment today from their monthly monetary policy decision struck me as worth noting:

'Inflation in the December quarter was higher than expected. This may be explained in part by faster than anticipated pass-through of the lower exchange rate, though domestic prices also continued to rise at a solid pace, despite slower growth in labour costs'.

Inflation...interesting.  All emerging markets should note the not riskless impact of a lower exchange rate. 

By contrast, this came out of the Korean central bank today, as reported by Reuters:

'South Korean consumer prices rose 1.1 per cent in January, well below the central bank's target inflation band...It marked the 15th straight month that the inflation rate has remained below the central Bank of Korea's target of 2.5-3.5 per cent'

Disinflation in Korea still then. 

Put all of this together with differing views on the status of QE and tapering at the world's central banks and volatility has and will be the result.  Christine Lagarde may have called for more collaboration amongst central banks overnight but the reality is that divergences are very apparent. 

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