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
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