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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