Australian headline inflation has not been an exception for the result of the slump in oil prices, headline inflation in Australia looks set to slide 0.7 pp to just 1.0%, a rate of inflation that has not been undercut since Q2 1998. Probably the largest single contribution will come from fuel prices, According to weekly data from the AIP (Australian Institute of Petroleum) "nationwide petrol prices declined by 13% between Q4 2014 and Q1 2015, Gas and other domestic fuels will also be weaker, but their weight is less than 1%, considering all to gather which should result in 0.5 pp off the rate of inflation". So they will have only a minor impact.
We could also anticipate a strong chance that food prices will reduce inflation, given weakness at the global level and the fact that a strong increase in Q3 2014 was only partially unwound in Q4.
More importantly, there could be upside risks here, as there are rise in residential property prices. Hence, we expect core inflation measures to be only moderately soft at 0.5% qoq after 0.7% in Q4, which would reduce the year-on-year rate of the trimmed mean by 0.1pp to 2.1% and keep the weighted median measure at 2.3% yoy.
However, there are sources of remarkable upside pressures now including positive employment data on the prices. The Aussie dollar has been continuously on the sliding, in trade-weighted terms it was down 5.2% qoq in Q1 of 2015, after a slide of 4.3% in Q4 o 2014 and the underpriced Aussie dollar is now bound to have upside force on tradable goods and service prices.
