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Underlying inflation in Australia is expected to remain low but stable in Q1, with the average of the two core measures expected to have risen by 0.4 percent q/q. This would be the third consecutive 0.4 percent quarterly outcome and would see annual underlying inflation lift a touch to 1.7 percent y/y, from 1.6 percent y/y in Q4 2016.
While last week’s meeting minutes highlighted the Reserve Bank Australia’s (RBA) current focus on the labor and housing markets, the CPI print remains of critical importance. The RBA would be disappointed by any further deceleration in underlying inflation.
The ANZ Property-Council survey for Q2 reported a strong gain in sentiment toward residential prices. This measures tends to be coincident with house prices, implying momentum continued to be robust in Q2.
On a more forward looking note, the construction outlook in the survey tends to lead dwelling approvals and commencements by 3-6 months. The recent pickup in this index suggests that the sharp drop in building approvals over the second half of 2016 may be approaching an end.
"The RBA would be disappointed by any further deceleration in underlying inflation. Our picks for headline and core are below market," ANZ Research commented in its latest report.
