Today published SCB new GDP data for the second quarter and as so many times before it became a major revision compared to the preliminary data: GDP grew 2.6% compared to the same quarter in 2013, compared with the previously reported 1.9%.
One question that immediately came up was how the review could potentially affect the Riksbank and a common perception seems to be that it means less chance of further rate cuts. Let me clarify that I do not think we will be seeing more cuts and I do not see any need for this. Another question is how a forward-looking central bank with an inflation target should react to the news that day? The answer is short and sweet, not at all! There are two reasons for the revised GDP figures should be totally irrelevant. One reason is obvious: The revision concerning the second quarter of this year is yesterday’s news, in two weeks, we are already in the fourth quarter.
A more fundamental argument is the following: best indicator of future inflation, today’s resource utilization, which measures how much larger GDP can be without causing wage and price driven bottlenecks. The best indicator of resource utilization is in turn the situation on the labor market, for simplicity unemployment. Today’s SCB-publishing means no revision of labor market data, which means that the view of resource utilization has not changed. GDP has increased compared to the previous publication, by contrast, no bearing on resource utilization. A forward-looking central bank should therefore concentrate on today’s labor market position and ignore GDP data. Historically also Riksbank, like for example the Federal Reserve, broadly used unemployment as rudder. Lately, however, released its forward-looking approach and instead focused mainly on the latest inflation figures. So osvuret is best, it is not excluded that the Riksbank’s current approach means that you also include the GDP for Q2 of decisions.
No comments:
Post a Comment