Australia's inflation profile unlikely to be weak enough to trigger policy action by RBA

Australia is set to release Q1 CPI data on Wednesday 27 April and key focus will be on whether the uplift in tradables inflation evidenced in Q4 2015 has continued into the first quarter on the year.

Australia's underlying inflation is running near the floor of the RBA's long-term target band of 2 to 3 percent. Weak global inflation scenario, poor wages growth, solid international competition and weaker price pressures in residential construction is expected to weigh on the inflation pulse in Q1 16.

“We continue to see underlying inflation running around the bottom of the RBA’s 2-3% target, while weaker fuel prices will again weigh on headline CPI. The average of the underlying inflation measures is forecast to rise by 0.5% q/q and 1.9% y/y. This is a touch below with the RBA’s forecasts." said ANZ in a report to clients.

A top Australian central banker on Wednesday reiterated that a wide range of information suggested inflation was likely to remain low over the next couple of years, in part due to spare capacity globally. The comments underline the message from the Reserve Bank of Australia's (RBA) April policy meeting that the country's low inflation would provide scope for a further cut in interest rates if needed to support the economy.

"The inflation profile is unlikely to be weak enough over a sustained period to trigger policy action by the RBA. That said, it is certainly no constraint should easier policy settings be needed to boost domestic demand.” added ANZ.