Australian Q3 CPI 2017 Preview: Inflation where art thou - Westpac

Justin Smirk, Research Analyst at Westpac, suggests that their forecast for the headline Australian CPI is 0.7%qtr holding the annual pace flat at 1.9%yr.

Key Quotes

“September is normally a seasonally strong quarter due to the post June 30 price resetting of many administered prices. The ABS seasonal factors moderate our estimate to a seasonally adjusted 0.4%.”

“Key factors in Q3 are: ongoing grocery competition holding back food prices; annual repricing of the tobacco excise; surging electricity prices and further gains in dwelling purchase costs (Sydney and Melbourne); almost flat rents; and, falling health, transport (including fuel) and communication prices.”

“There is a lot of interesting in energy prices and we have estimated a national average rise in electricity bills of 13% and a 12% rise in gas bills. Ex gas & electricity we are forecasting a 0.27% rise in the CPI.”

“Core inflation is forecast to print 0.3%qtr (0.29% at two decimal places) holding the annual rate flat at 1.8%yr. The trimmed mean is forecast to rise 0.27% while the weighted median forecast is 0.32%. The two quarter annualised pace of core inflation is forecast to decelerate to 1.7%yr from 2.1%yr – well below the bottom of the RBA’s target band.”

“Traded prices are forecast to be flat in the quarter and –0.6%yr, while non-traded prices are forecast to rise 1.0%qtr/3.2%yr driven by rising housing and energy costs.”

“This is a soft update as outside of electricity, gas and dwelling purchases it is hard to find any signs of broader inflationary pressure with many consumer goods captive to a competitive deflationary cycle. Ex housing (which includes energy bills) the CPI is forecast to rise 0.1%.”

“The upcoming re-weighting of the CPI is only going to increase the emphasis of the disinflationary sectors making it even harder to generate an acceleration in inflation as we move through 2018.”