Petrol prices falling a little. Diesel remains elevated.

Why did the RBA take the narrow path, and why is it now talking tough? A balancing clause that treats jobs as a short-run trade-off against inflation. Two definitions of full employment. And a NAIRU estimate in the low 4s that was always wishful. Three errors, all pointing the same way. Trimmed mean inflation persistent at 3.6 per cent is the bill. markthegraph.blogspot.com/20…

Here's some evidence. Two models, four specifications, all fitted to Australian wage and price data. Every one puts u* well above 4.25: between 4.6 and 4.9 at the June quarter 2026, where the chart ends. They're not independent, since they share the same data, but none comes close to 4.25. The chart also shows unemployment below every estimate from 2021 onward, by more than a point at the 2022 low. That matches the inflation record. Unemployment sat around or below 4.25 for most of the past four years, and trimmed mean dipped into the band only briefly in 2025 before climbing back to 3.6, driven by domestic and services inflation. If u* were below 4.25, inflation should have settled at target with unemployment there. It hasn't. u* is uncertain. But zero evidence is a stretch.

If non-tradeable and services inflation was lower, the RBA might be able to ignore an oil supply shock, but with domestic demand higher, it is much harder to look through the supply shock.

Natural gas remains the pressure point.

the Iran SNAFU continues, prices remain elevated.

The Labour Market is deteriorating. But at 4.7%, it is still more likely than not on the tight side of neutral, which i have around 5%. so the critical indicator remains inflation. The most recent monthly was encouraging (3% core annualised), but the trend and annuals remains well above target. The Sept CPI print will be critical to deciding whether further tightening is needed in 2026.

The next inflation print will be critical, but the unemployment rate is increasing faster than the RBA anticipatred.

Justin Wolfers gives an excellent tribute to Bob Hall and Mike Woodford, who won the 2026 Economics Nobel for their work on the New Keynesian Synthesis - what every modern central bank follows - youtu.be/hpT6CxyuXTA?is=Z5pf… via @YouTube

critcal revisions