AUD Q1 2016 CPI Preview: Inflation Pulse Remains Low - ANZ

AUD Q1 2016 CPI Preview: Inflation Pulse Remains Low - ANZ

Jo Masters, Senior Economist at ANZ, suggests that Australia’s Q1 CPI data (to be released on Wednesday 27 April) is expected to confirm that the inflation pulse remains low, reflecting weak wages growth, softer price pressures in residential construction, strong international competition, and a benign global inflation environment.

Key Quotes

“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.

Our daily tracking of petrol prices indicate a 10.8% fall in Q1 2016, which will detract 0.3ppt from headline CPI, while fresh fruit and international holiday travel and accommodation prices tend to fall in Q1. Seasonal increases in education, childcare, and health will provide some offset. Also of note is the increase in postage costs and the average 3.2% increase in public transport fares in Victoria.

What to watch: Our key focus will be whether the uplift in tradables inflation in Q4 2015 has persisted. We are sceptical that it will be given the intensity of international competition and the decline in retail margins in Q4, as well as the weak signal from the NAB survey of retail prices. We will also be interested to see if the weakness in new dwelling purchase costs in Q4 is repeated. While we expect residential construction to slow, it may be too early for a sustained pull-back in price pressures given the still-strong level of construction activity.

Policy implications: 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.”

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