Australia's core inflation set to fall below RBA target

The headline CPI of Australia lifted 0.5% in Q3. Whereas, market was expecting for 0.7%. The annual rate is flat at 1.5%yr compared to 1.3%yr in Q1, 1.7% in Q4 and 2.3%yr in Q3.  

The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.3%qtr compared to market expectations for 0.5%qtr. In the quarter, the trimmed mean gained 0.28% while the weighted median lifted 0.29%. The annual pace of the average of the core inflation measures is now 2.2% from 2.3% in Q2.

The six month annualised pace of core inflation came in at a very modest 1.7%qtr, a moderation from 2.5%yr in Q2 and a recent peak of 2.7%yr in Q1. Core inflation is currently on track to dip below the RBA's inflation bank if it continues to remain around its current pace.

In the June quarter there was across the board softer prints in just about all categories. Food rose just 0.1%, clothing & footwear fell 1.1%, housing costs rose a modest 0.6% on the back of a modest 0.7% lift in dwelling purchases, household contents lifted 0.8% while health came in at just 0.3%. Transport did rise 0.1% with auto fuel dropping as expected but at a slightly softer pace of -1.7%. Recreation came in at a softer 0.8% as holiday travel rose just 1.7%.

"The broad brush softness in most components suggest that competition in the Australian retail space is keeping the pressure on retail prices preventing more of the usual pass through from the lower AUD to consumer prices. Core inflation is set to fall to below the RBA target band if the current momentum continues suggesting it is set to undershoot the RBA's current expectations for 2015", says Westpac.