Australia’s headline inflation accelerates in Q4, to remain below policy target band until H2 2017

Australia’s headline inflation accelerated in the fourth quarter, coming in slightly below market expectations. The inflation data for the December quarter imply that the sharp disinflationary forces that have been a drag on prices are waning and that inflation is stabilizing, noted ANZ in a research report.

The headline inflation accelerated 0.5 percent sequentially in the fourth quarter, as compared with consensus expectation of 0.7 percent.  Retail competition continued to be a drag on clothing and footwear, furniture, household equipment & services. Meanwhile, fruit & vegetable prices were up slight, whereas prices of fuel, tobacco and domestic airfares contributed positively to the headline inflation in the December quarter.

Underlying inflation seems to have stabilized. In six month-end annualized terms, core inflation came in at 1.7 percent in the fourth quarter, as compared with the second quarter 1.5 percent. The average of the two underlying measures was up 0.4 percent quarter-on-quarter, to be 1.6 percent up year-on-year, whereas CPI excluding volatiles came in slightly weaker, up 0.3 percent sequentially, stated ANZ.

Tradable prices dropped 0.1 percent sequentially and rose 0.1 percent year-on-year, in spite of the rise in petrol prices. This implies that retail price competition stays intense as seen by ongoing weak inflation in furnishings and clothing. Non-tradable prices were up 0.8 percent sequentially, whereas domestic market services prices accelerated 0.4 percent sequentially, consistent with ongoing weak wage growth.

The housing group was up 0.5 percent sequentially, showing a weak rise of 0.1 percent in rental inflation and a 0.5 percent rise in new dwelling purchase costs. Today’s data is in line with the Reserve Bank of Australia’s projection profile and has no immediate policy implication.

“While the stabilisation in inflation would be welcome, we continue to see inflation running below the policy target band until H2 2017”, added ANZ.