Australia Q1 2018 consumer price inflation likely to stabilize little below RBA’s 2-3 pct target band, says ANZ Research

Australia’s consumer price inflation (CPI) for the first quarter of this year, scheduled to be released on April 24 is expected to provide further evidence that inflation has stabilised, a little below the RBA’s 2-3% policy target band. Based on ANZ Research’s forecasts, the average of the core measures is expected to be up 0.5 percent q/q, a touch faster than the quarterly pace in Q4 2017 but leaving core inflation steady at 1.9 percent y/y.

For headline CPI, a rise of 0.4 percent q/q is expected, with the annual rate dipping a touch, to 1.8 percent y/y from 1.9 percent y/y in Q4. Seasonal increases in education, childcare, and pharmaceutical products will add to headline CPI in Q1 but will be offset by seasonal falls in the prices of international holiday & accommodation and fresh fruit & vegetables. Petrol prices were broadly flat in the quarter.

Deflationary pressure on retail prices is expected to continue to weigh on inflation, although the housing market is likely to provide some offset. Looking forward, lifting inflation back toward the mid-point of the target band requires an acceleration in wage growth (feeding through to domestic services inflation) to offset the drag from the retail sector.

"Data in line with our forecast would be consistent with the RBA’s inflation profile. Given the Bank’s focus on making progress towards the mid-point of the inflation band, Q1 data will support the case that monetary policy is set to be on hold for some time to come. We continue to think the cash rate will remain at 1.5 percent until May 2019," the report added.

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