Australia: Headline CPI likely to print 0.8% for Q4 - Westpac

Justin Smirk, Research Analyst at Westpac, suggests that they forecast for the Australia’s headline CPI to print 0.8%qtr lifting the annual pace a little from 1.8%yr to 2.1%yr.

Key Quotes

“While seasonality may be a factor for individual components, overall on ABS seasonal factors seasonality is not an issue for the December quarter CPI.”

“Core inflation is forecast to print 0.5%qtr (0.54% at two decimal places) lifting the annual rate to 2.0%yr. The trimmed mean is forecast to rise 0.52% while the weighted median forecast is 0.57%. The two quarter annualised pace of core inflation is forecast to decelerate to 1.8%yr from 1.9%yr – below the bottom of the RBA’s target band.”

“Key factors in Q4 are: annual repricing of the tobacco excise; further gains in dwelling purchase costs (Sydney and Melbourne); almost flat rents; a seasonal bump in domestic holiday costs; and, ongoing competition holding back food, clothing and household goods prices inflation.”

“Traded prices are forecast to be rise 1.2% in the quarter to be up 0.4%yr, while non-traded prices are forecast to rise 0.5%qtr/2.9%yr mostly due to steady gains in housing.”

“Westpac is forecasting a modest acceleration in the pace of headline to 2.1%yr. This will take the two quarter annualised pace to 2.8%yr.”

“Core inflation is still at the bottom of the RBA target band and the expected moderation in dwelling purchases price inflation through 2018, along with consumer goods still captive to a competitive deflationary cycle, it is hard to see core inflation breaking higher.”

“To the September quarter, the average error of the median forecast for the CPI was around +0.2ppt. Forecasters appear to have had an upward bias most likely due to underestimating the completive forces in key retail sectors. It is not clear they have fully adjusted for this and we note that the NZ December quarter CPI surprised meaningfully to the downside (0.1% vs. 0.4% median).”