Australia: Q4 inflation to provide the RBA with some comfort - ANZ

Jo Masters, Senior Economist at ANZ, expects Australia’s Q4 inflation data (to be released on 25 January) to provide the RBA with some comfort that inflation is stabilising and the strong disinflationary forces are starting to abate. 

Key Quotes

“That said, inflation is expected to remain weak across both tradable and nontradable sectors, and core inflation is forecast to remain below the RBA’s policy target until H2 2017. The core themes driving inflation over the past year are likely to continue. The global inflation pulse may be turning, but retail price competition, weak wage growth, and developments in the housing sector continue to weigh.”

“Headline inflation is forecast to have risen by 0.5% in Q4, which would see year ended inflation at 1.4%, compared to 1.3% in the year to Q3 2016. Fruit and vegetable prices are forecast to fall sharply (following a surge in prices in the previous quarter), while fuel prices are forecast to have risen by 6%. We are also expecting seasonal increases in tobacco and domestic airfare prices in Q4.” 

“We expect both the trimmed mean and weighted median to have risen by 0.5% q/q in Q4, leaving the average of the two measures up 1.6% on a six-month end annualised basis (compared with 1.7% in Q3). This is broadly in line with the forecasts outlined in the RBA’s latest SoMP.” 

“Policy implications: We do not expect the Q4 inflation print to have any immediate policy implications. Inflation looks to be stabilising (albeit at weak levels), but continued strength in the housing market is likely to keep concerns about financial imbalances on the table.”