Australian CPI Preview: Forecasts from seven major banks, vindicating the RBA’s dovish approach

Australian Consumer Price Index (CPI) figures are due on Wednesday, October 26 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.

The headline inflation is set to accelerate to 7.0% vs. the prior release of 6.1% on an annual basis. If so, headline would be the highest since Q2 1990 and further above the 2-3% target range. Meanwhile, Q3 Trimmed Mean is expected at 5.6% year-on-year vs. 4.9% in Q2. Quarter-on-quarter inflation is expected at 1.5%.

ANZ

“We have lifted our Q3 trimmed mean inflation forecast to 1.6% QoQ (previous forecast: 1.4% QoQ), which represents a modest acceleration from the Q2 pace, but left our headline inflation forecast unchanged at 1.6% QoQ. This would see annual inflation reach 7.0% YoY for headline and 5.6% YoY for trimmed mean in Q3. This would not be inconsistent with the RBA’s current Q4 picks of 7.75% YoY and 6% YoY respectively. An upside surprise would be problematic for the RBA after it slowed the pace of hiking in October, but a 25 bps cash rate hike in November still seems the most likely outcome in this case. It would make a move in December more likely than we currently anticipate though.”

Westpac

“We forecast a 1.1% print, lifting the annual pace from 0.4% to 6.5%. The reason for the step down from 1.8% print in Q2 is the significant state energy rebates, particularly in WA and Victoria. Due to these rebates, utility cost are forecast to fall 10.5% subtracting 0.48% from the September quarter CPI. Without the rebates, our CPI forecast would have been 1.8%. The Trimmed Mean is forecast to lift 1.5% in September, matching the March and June quarters, taking the annual pace to 5.6% YoY from 4.9%, well up from the March 2021 low of 1.1% YoY. Our forecast peak is 5.8% YoY in December 2022.” 

ING

“We don’t think the 6.1% inflation reading in Q2 22 was the peak, and look for the inflation rate to increase to 6.4% YoY, following a 1.0% QoQ increase. The Reserve Bank of Australia has already stated that it expects inflation to rise further, so this doesn’t necessarily imply any deviation from their recent slower pace of tightening at forthcoming meetings, or for that matter, the outlook for the AUD.”

TDS

“We expect a more dovish headline CPI print at 1.3% due to the significant offset from the rebates and lower pump prices. However, trimmed-mean CPI may stay elevated at 1.6% QoQ as broader price pressures are still brewing, especially in the housing and food categories. Unless trimmed-mean inflation surprises strongly higher, we expect the RBA to stick with 25 bps hikes till March 2023.”

NAB

“We forecast headline of 1.3% QoQ and 6.7% YoY. For the more closely watched core trimmed mean measure, we look for an increase of 1.6% QoQ and 5.7% YoY. For the November RBA meeting, we expect a 25 bps hike, but a shift back to 50 bps cannot be fully discounted if the CPI surprises sufficiently high and broad.”

SocGen

“Headline and core (i.e., trimmed mean) inflation are likely to have risen further in  Q322 (1.3% and 1.5%, respectively), which would continue to support the RBA’s rate-hike campaign.  Trimmed mean and weighted median inflation may also rise further in YoY terms (5.6% and 4.7%), confirming the broad-based nature of the ongoing rise in inflation. We expect an additional jump in Q4 22 headline inflation, as retail electricity prices should finally rise to reflect the recent energy price increase in Q4.”

Citibank

“Australia’s CPI should see headline and underlying CPI rise by 1.6% over the quarter, implying a yearly reading of 7% and 5.4%, respectively. But the bar for a hawkish surprise for the RBA is high because the Bank already has bullish year-end inflation forecasts for headline and underlying CPI at 7.8% and 6%, respectively.”