Australia 4Q16 CPI likely to bring little comfort for RBA, data to show signs of recovery

Australia 4Q16 consumer inflation is likely to bring some comfort from the Reserve bank of Australia (RBA) as prices seem to stabilise and the strong disinflationary forces are starting to abate.

Headline inflation is forecast to have risen by 0.5 percent in the last quarter of 2016, which would see year-ended inflation at 1.4 percent, from 1.3 percent in the year to the third-quarter of 2016. Individually, fruit and vegetable prices are forecasted to fall sharply following a surge in prices in the previous quarter, while energy prices are estimated to have risen by 6 percent.

We expect both the trimmed mean and weighted median to have risen by 0.5 percent q/q in the last quarter of 2016, leaving the average of the two measures up 1.6 percent on a six-month end annualised basis (compared with 1.7 percent in the third-quarter of 2016). This is broadly in line with the forecasts outlined in the RBA’s latest SoMP, said ANZ in its research note.

It worth noting that the 4Q16 CPI reading will not have any immediate policy impact as consumer prices seem to have been stabilising with the support of recovering energy prices.

We do not expect the Q4 inflation print to have any immediate policy implications. Inflation looks to be stabilising (albeit at weak levels), but continued strength in the housing market is likely to keep concerns about financial imbalances on the table.

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