Australian CPI inflation likely to have risen 0.3 pct sequentially in Q3

The Australian consumer price index data is expected to show that inflation has stayed weak in the third quarter, stated ANZ. The data is set to be released by the end of this month. The inflation report is unlikely to be sufficient to give confirmation that disinflationary forces are diminishing. This might complicate the monetary policy outlook. However, the RBA is unlikely to mechanically respond to a low result, added ANZ.

“We expect the trimmed mean to have risen by 0.3 percent q/q and the weighted median by 0.4 percent q/q. This would see the average of the two measures rise by 0.4 percent q/q and be steady at 1.5 percent y/y”, noted ANZ.

Significantly, the risks surrounding this projection appear to be skewed to the downside given the still subdued wage growth, ongoing pressure on a broad range of retail prices and low rental inflation. New house prices are a major uncertainty in the forecast. This is the biggest item in the CPI at 9 percent of the basket and has been pretty volatile in the past year.

The outcome for the average of the two underlying measures of 0.3 percent quarter-on-quarter and possibly set off a downgrade to the central bank’s inflation profile.

However, the backdrop is different from April when the subdued first quarter CPI print was released, said ANZ. The Australian central bank has two rate cuts in the pipeline and recent communication has sounded comfortable regarding policy settings; the domestic economy seems stronger, the property market has re-energized; prices of commodity have increased and the alterations to the statement on the monetary policy conduct have risen the ability of RBA to tolerate below-target inflation on grounds of financial stability. Given this, the detail would be significant in assessing any monetary policy implications.

“The headline CPI is forecast to have risen by 0.5 percent q/q in Q3, slightly higher than the 0.4 percent q/q Q2 outcome, leaving annual inflation steady at 1 percent y/y. Our daily tracking of petrol prices imply a 3.2 percent fall in the quarter”, added ANZ.