Australia: Headline CPI to lift to 2% y/y - ANZ

Jo Masters, Research Analyst at ANZ, forecasts Australian headline CPI to lift to 2% y/y, from 1.5% y/y in Q4 2016, and would be the highest rate since September 2014.

Key Quotes

“The rise is expected to be largely due to base effects as well as higher petrol prices and seasonal increases for education, childcare and pharmaceutical products.”

“Importantly, underlying inflation is expected to remain low but stable. We forecast the average of the two core measures to have risen by 0.4% q/q, which would be the third consecutive 0.4% quarterly outcome. This would see annual underlying inflation lift a touch to 1.7% y/y, from 1.6% y/y in Q4 2016.”

“From a policy perspective, an outcome in line with our expectation would be consistent with a stabilisation in core inflationary pressures. A core reading of less than 0.4% q/q would be disappointing for the RBA, although it would take a reading below 0.3% q/q to trigger a downward revision to the Bank’s inflation profile in the Statement on Monetary policy (5 May).”

“Looking further forward, we continue to see a very benign inflation outlook with underlying inflation only forecast to be back within the 2-3% target band in mid-2018.”