Australia: CPI on track for the RBA – TDS

Australia’s Q2 core CPI rose by +0.5%/qtr and +1.8%/yr as widely expected (mkt 1.75%, TD 1.82%) and entirely consistent with the RBA’s projection of 1¾%/yr by midyear, and on track to reach 2%/yr by year end, notes the analysis team at TDS.

Key Quotes

“The AUD initially sank on the softer headline CPI print of +0.2%/qtr and +1.9%/yr (mkt +0.4%/qtr, +2.2%/yr). However, as this is not the RBA’s focus, AUD weakness is unlikely to be sustained.”

“As core inflation continues to slowly grind higher from the 2016 low of 1.5%/yr, and we see higher wage inflation in due course, we see the timing of the RBA’s first hike being closer to May 2018. OIS is fully priced for +25bp by September 2018.”