27 Apr 2016
AUD: First disinflationary CPI headline print in seven years - Westpac
Research Team at Westpac, notes that the Australia’s core measures, which are seasonally adjusted and exclude extreme moves, rose 0.2% compared to the market’s expectation of 0.5% rise, Westpac was slightly higher at 0.6%.
Key Quotes
“In the quarter, the trimmed mean gained 0.21% while the weighted median lifted 0.14%. The annual pace of the average of the core inflation measures is now 1.5% from 2.0% in Q4 (Q4 was unrevised).
The six month annualised pace of core inflation came in well below the band at a very modest 1.4%yr pace, this is the third quarter in a row it has been below the band and the lowest six month annualised pace since the 1.3%y print in March 1999 (a seventeen year low).
The key observation in the March quarter is the across the board weakness in Australia retail prices highlighted by the first disinflationary CPI headline print in seven years and the lowest six month annualised pace of core inflation in seventeen years. All together this highlights downside risks for our medium term inflation forecasts.
But low inflation, on its own, is not a trigger for a rate cut. Sure, it unlocks the interest rate door for the RBA should it decide it needs to walk through that door as the Bank would not have to wait for another CPI update before doing so.
However, it does not mean that the RBA will cut rates! A rate cut is dependent on local economic conditions demanding a rate cut. With unemployment on a new downtrend this is not so at the moment and we suggest that the RBA is waiting to see a new weaker trend in domestic activity and employment before it would embark on such a strategy.”
Key Quotes
“In the quarter, the trimmed mean gained 0.21% while the weighted median lifted 0.14%. The annual pace of the average of the core inflation measures is now 1.5% from 2.0% in Q4 (Q4 was unrevised).
The six month annualised pace of core inflation came in well below the band at a very modest 1.4%yr pace, this is the third quarter in a row it has been below the band and the lowest six month annualised pace since the 1.3%y print in March 1999 (a seventeen year low).
The key observation in the March quarter is the across the board weakness in Australia retail prices highlighted by the first disinflationary CPI headline print in seven years and the lowest six month annualised pace of core inflation in seventeen years. All together this highlights downside risks for our medium term inflation forecasts.
But low inflation, on its own, is not a trigger for a rate cut. Sure, it unlocks the interest rate door for the RBA should it decide it needs to walk through that door as the Bank would not have to wait for another CPI update before doing so.
However, it does not mean that the RBA will cut rates! A rate cut is dependent on local economic conditions demanding a rate cut. With unemployment on a new downtrend this is not so at the moment and we suggest that the RBA is waiting to see a new weaker trend in domestic activity and employment before it would embark on such a strategy.”