Weak Q1 CPI print unlikely to drive RBA to cut rates at May 3rd meet

Australia first quarter’s key Consumer Price Index (CPI) scores are set for release on Wednesday, this week. The NAB expects headline CPI to be a low +0.1% q/q, 1.6% y/y. Underlying inflation is also expected to be subdued at 0.5-0.6% q/q, 2.0% y/y (in line with the RBA February SoMP track).

The Reserve Bank of Australia (RBA) will also be releasing their CPI variation reports, in which they show medians and means of the key figures. Australia’s first quarter inflation print on 27 April will be of importance ahead of RBA’s next monetary policy meeting on 3 May, but is unlikely to cause a change in its steady hand. Moreover, comments from the Reserve Bank of Australia (RBA) signal that the hurdle for lowering monetary policy further has increased.

Rising exchange rate and the low level of inflation globally could mean Australia's inflation will likely remain low over the next year or two. But given the rebound in commodity prices, unemployment falling slightly to 5.7% in March, and the economy growing at 3%, even a weak CPI print this week is unlikely to drive the RBA to cut rates in the near term.

"Given the broad strength in the domestic economy, we believe the RBA is highly unlikely to cut rates at its next meeting in May." said ANZ in a report.