Australian CPI Preview: Forecasts from seven major banks, sticky inflation figures

Australian Consumer Price Index (CPI) figures are due on Wednesday, January 25 at 00:30 GMT and as we get closer to the release time, here are forecasts from economists and researchers of seven major banks regarding the upcoming inflation data.

Headline inflation is expected at 7.5% year-on-year in Q4 vs. 7.3% in Q3, while trimmed mean is expected at 6.5% YoY vs. 6.1% in Q3. For December alone, headline is expected at 7.7% YoY vs. 7.3% in November. 


“We have lifted our Q4 trimmed mean CPI inflation forecast to 1.7% QoQ. This would see the annual rate reach 6.7%, exceeding the RBA’s forecast of 6.5% YoY. We forecast non-tradable and services inflation will both print at 1.9% QoQ, annualising at almost 8%. Accordingly, we see the risks to our terminal cash rate pick of 3.85% as weighted to the upside. We maintain our headline CPI inflation forecast at 1.8% QoQ. This would see the annual rate lift to 7.7%, below the RBA’s 8.0% YoY pick. But we think it would take a downside surprise in trimmed mean CPI relative to the RBA’s 6.5% YoY forecast for it to consider a pause in cash rate hikes in the next few months.”


“Australian retail gasoline prices were down more than 8% MoM in December. Feeding this figure through to the transport component, we could see a smaller increase in the aggregate monthly price level of 0.2% MoM in December, down from an increase of 0.8% MoM in November. This should bring the December inflation rate down to 6.9% YoY, and the fourth quarter inflation rate down to 7.0%.”


“We forecast a 1.5% rise in the December quarter boosting the annual pace 0.1ppt to 7.4% which is our forecast peak in the annual pace of inflation for the current cycle. We are forecasting the annual pace of headline inflation to ease back to 3.7%yr by end-2023. The Trimmed Mean is forecast to lift 1.6% in December, a moderation from the 1.8% gain in September which we are forecasting to be the largest quarterly rise this cycle. The annual pace for the Trimmed Mean is set to lift to 6.6%yr, from 6.1%yr in September, which again is our forecast peak in core inflation. We are forecasting core inflation to moderate to 3.4%yr by end 2023.” 


“CPI inflation is expected to have peaked in Q4 2022. Lower-than-expected fuel prices and lower-than-feared fruit and vegetable prices despite recent floods mean we now expect 1.6% QoQ and a peak of 7.5% YoY. Despite that, we expect the detail to provide little comfort about the inflation backdrop with strong services inflation likely. For trimmed mean we forecast 1.6% QoQ and 6.6% YoY. While our forecast print is lower than Q3’s 1.8%, on our numbers this is almost entirely due to slowing new dwelling construction cost rises. We expect market services and labour-market sensitive inflation to remain uncomfortably strong amid elevated labour cost growth and strong demand.”


“We put annual inflation at 7.5%, some distance from the 8% RBA forecast. While lower headline inflation is positive, it's the trimmed measure that will draw more attention. TD is at 1.6% QoQ (6.6% YoY). A trimmed print between 6.1% and 6.5% locks in a 25 bps Feb hike.”


“Both headline and core (i.e., trimmed mean) inflation are likely to have risen further in December, which would also lead to an increase in quarterly inflation during 4Q22. The rise in electricity prices that is reflected in CPI only on a quarterly basis (March, June, September and December) will boost the headline inflation figure in December, despite the reduction of automotive fuel inflation (led by the decline in crude oil prices) and housing inflation (driven by housing market weakness that is weighing on new dwelling purchase prices). Trimmed mean inflation will also likely rise a bit in December, reflecting the broad-based inflation pressures seen in the Australian economy. If our forecasts for the December inflation figures are correct, it means that the quarterly inflation in 4Q is higher than 3Q, both in terms of headline and trimmed mean inflation. If it is confirmed that inflation continued to increase until the end of 2022, it will support further tightening measures by the RBA, which argues that inflation has yet to peak in Australia (while the peak of headline inflation has already been confirmed in quite few countries, including the US).” 


“Australia’s inflation is set to accelerate in Q4 with Citi analysts also upwardly revising their estimate of underlying inflation to 1.5% (previous 1.4%). This is because inflation is more broad-based, particularly across the services sector. On a yearly basis, headline inflation is expected to accelerate to 7.7% in Q4, and underlying inflation to 6.1%. These are still comfortably within the RBA’s previous forecasts of 8% and 6.5%, respectively but risks to the Q4 CPI report remain to the upside due to a tight labor market with wages growth accelerating.”

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