Australia's Q1 2017 CPI preview - NAB

National Australian Bank (NAB) is out with a brief preview on the upcoming Australian Q1 CPI report, scheduled for release tomorrow at 0130GMT.

Key Points:

Underlying inflation is likely to remain weak and below the RBA's target band

Ongoing labour market softness will keep wages inflation contained

Rent inflation will also be weak at a time of increasing dwelling supply

However, potential government policies to tackle house price growth could impact rental growth going forward in both directions

We will continue to monitor further developments in this space in the lead up to the May Federal Budget

The recent strengthening of the AUD (until the past few weeks) will keep imported cost pressures low, further helped by continuing competitive pressures in the retail sector

However, the NAB Business Survey continues to show deteriorating conditions in the retail industry, which might hamper the industry's ability to absorb any further imported cost pressures in the future

Cyclone Debbie which hit Queensland in late March has caused damage to key crops and will raise headline inflation in Q2 via higher fruits and vegetable prices but will not impact core inflation

Overall, our inflation outlook is largely unchanged, with core inflation below 2% in 2017 and 2018, picking up to 2% y/y by end-2019

Headline inflation is a little higher due to temporary cyclone impacts, fuel price and tobacco excise increases