Yesterday's inflation data held no great surprises. Everybody expected a pretty low number for inflation during the September quarter and for the year to September, and they got it: 0.2% for the quarter, 0.2% year on year.
Cue for hand wringing over the Reserve Bank yet again allowing inflation to stay too low.
But here's the thing.
We know the overall headline rate of 0.2% can be split into two bits, the bit that happens in the 'tradables' world of exports and imports, and the 'non-tradables' bit that happens in our own economy, the likes of the local authority rates, the doctor's bill, or the school fees. And we know that the overall 0.2% outcome was made up of tradables prices falling over the past year by 2.1%, while non-tradables prices rose by 2.1%.
The Reserve Bank has sod all influence over the tradables bit, except to the extent that it might manage to control the exchange rate, which influences how much of the world inflation rate comes through to us. But it (and any other central bank) tends not to be able to steer exchange rates terribly well, so in practice whether the Reserve Bank is on top of things comes down to whether it is steering non-tradables inflation to where it needs to be.
So let's have a look at that non-tradables inflation in more detail. Here it is.
The blue line is annual non-tradables inflation, which is running at 2.1%. So remind me again how the Reserve Bank hasn't got inflation back up to 2%, the midpoint of the 1% to 3% band it's supposed to be focussed on?
But (you'll say) that 2.1% rate of non-tradables inflation isn't all it's cracked up to be. It's not really 2.1%. It's inflated, innit, by the housing market. And you're right, it is. But if you take out the cost of new houses, you get the green line, non-tradables ex housing. It's running at 1.8%. That's not too bad, either, if you're supposed to be aiming at 2%.
Course (you'll reply), there are other housing-market-related things still being counted in that non-tradables ex housing line, in't there? Rent. The cost of keeping the house in good running order. The rates. And again, you're right. So let's purge the non-tradables inflation of every damn house-related thing - the cost of a new house, the rent, yadda yadda yadda.
That gives you the red line, non-tradables less anything to do with a house. On that basis non-tradables inflation is running at 1.25%. That's short of the Reserve Bank's 2% focus, so you could beat them about the ears if you felt like it. On the other hand, it's at least crept back into the 1% to 3% band, and it's clearly headed in the right direction. Every one of these measures has been on the rise all year.
One of the big mysteries of macroeconomics recently has been, where's the inflation gone? Why hasn't it come back like it used to when things pick up? That's a big topic, and everyone from Janet Yellen at the Fed to Philip Lowe, the new governor of the Reserve Bank of Australia have been having a crack at it, and I'll come back to it one of these days.
My thought today, though, is this: maybe it's actually come back, and we haven't noticed.