Australian Q2 CPI: Headline lower, but core steady – HSBC

Australia’s headline CPI inflation was softer than expected in Q2 at 1.9% y-o-y (market expected 2.2%), but the underlying measures – which the RBA will be more focussed on – were in line with expectations at 0.5% q-o-q, which is at the bottom end of the RBA’s 2-3% target band in quarterly terms, explains the research team at HSBC.

Key Quotes

“Annual underlying inflation remains below the target band, at 1.8% y-o-y, but is past the trough; taking the two main measures together this was the strongest reading for underlying inflation since Q4 2015. We expect underlying inflation to gradually move higher over H2 2017 as higher commodity prices and the end of the mining investment decline flow through and support a modest lift in wage growth. We expect the RBA to begin lifting its cash rate in Q1 2018.”