Can You Say Deflation?

As repeated ad nauseum here, I believe as 2008 finished with a hint of deflation so that theme will continue in 2009. The latest TD Securities Melbourne Institute Monthly Inflation guage for December showed inflation fell -0.2% in December after falling -0.6% in November. Inflation is now up 2.2% from 1 year ago.

That is more than 1 year in advance of when the RBA had forecast inflation to come down to such levels. No doubt the RBA will be entertaining more rate cuts at their meeting in February. Presently futures are forecasting a 90% chance of a 100 bps rate cut at the February 4th meeting. That may be a bit too much, but you can expect at least another50 bps cut.