Australian consumer price inflation likely to have accelerated 0.5 pct in Q2, says ANZ

Australian second quarter consumer price data is expected to affirm that inflationary pressures in the nation have stabilized. According to an ANZ research report, Australian inflation is expected to have accelerated 0.5 percent sequentially in the June quarter, consistent with the earlier two quarters. This would see annual inflation rise to 2.3 percent year-on-year, the most solid result since the third quarter 2014 and much above the recent low of 1 percent in the second quarter of 2016.

However, underlying inflation pressures continue to be more modest. The average of the core measures is likely to have risen by 0.5 percent sequentially in the second quarter, the same rate as the average of the earlier two quarters that would keep annual core inflation stable at 1.75 percent year-on-year.

The second quarter inflation is likely to have been stimulated by the impact of Cyclone Debbie on vegetable, fruit and sugar prices and the annual rise in private health insurance and the regular tobacco indexation. Fuel prices dropped in the quarter and will counter some of that boost, while domestic holiday and travel will be a drag on inflation.

A subdued global inflation pulse, intense retail competition and anaemic wage growth continue to be main factors for the inflation outlook. Wage growth appears to have stabilized; however, just a gradual rise is expected given the amount of spare capacity in the labor market. Australia’s core inflation is likely to remain below RBA’s 2 percent to 3 percent target range until late 2018, stated ANZ.

A slower than expected acceleration in wage growth continues to be main risk to the inflation outlook. With retail competition continuing to be a drag and given the outlook for the housing component of the CPI, the onus is on wage growth to lift core inflation back to the policy target band.

“Our preliminary estimate for Q3 headline CPI is for a 0.9% q/q rise, boosted by the sharp rises in electricity and gas prices for households, which came into effect on 1 July”, added ANZ.

At 23:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was slightly bullish at 63.6684, while the FxWirePro's Hourly Strength Index US Dollar was neutral at -51.1097. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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