Australia: Soft update of 2018 Q2 CPI - Westpac

Justin Smirk, Research Analyst at Westpac, points out that Australia’s June Quarter CPI printed 0.4%qtr compared to Westpac’s forecast for 0.4%, while the market median was 0.5%.

Key Quotes

“Given that at 2 decimal places the rise in the CPI was 0.36%qtr it’s clearly a soft update. The annual rate was lifted on base effects to 2.1%yr compared to 1.9% in 2018 Q1 and 2017 Q4 and 1.8%yr in Q3.”

“The average of the core measures, which are seasonally adjusted and exclude extreme moves, rose 0.5%qtr meeting expectations.”

“In the quarter, the trimmed mean gained 0.46% while the weighted median lifted 0.45%. The annual pace of the average of the core measures printed 1.9%yr, a slight deceleration below the band from 2.0%yr in Q1 2018 and in Q4 and Q3 of 2017.”

“Incorporating revisions, the six month annualised growth in core inflation is only (just) holding the bottom of the RBA target band printing 2.0%yr.”

“So far in 2018 we struggle to find any broad inflationary pressure in the Australian economy.”

“We have now seen seven consecutive quarters where forecasters over-estimated the CPI print. The average error since the December quarter 2016 is +0.14ppt.”

“Will analysts now over adjust their estimates for inflation downwards for the next quarter resulting in the first upwards surprise from inflation in the September quarter CPI?”

“Our preliminary estimate for the 2018 Q3 CPI is 0.5%qtr which will see the annual pace ease to 2.0%yr. We now think we have seen the peak for inflation in 2018 and expect inflation to remain under 2.0% all the way out to end 2019.”