Later on this morning the Australian Bureau of Statistics (ABS) will release its March quarter consumer price inflation (CPI) report, an important economic data point that can influence not only the outlook for interest rates but also wage inflation.
Here’s the state of play.
- The report is based off price movements in a set basket of goods and services commonly purchased by metropolitan households.
- The basket contains 87 individual expenditure classes that form 11 broader categories. The classes are weighted based on estimated expenditure by metropolitan households.
- Throughout the ABS report you’ll hear the terms “headline” and “core” inflation.
- Headline inflation refers to the overall movement in the CPI index. The core reading — combining the trimmed mean and weighted median inflation figures provided by the ABS — strips out volatile price movements which can augment the headline reading.
- When it comes to the outlook for interest rates, all attention is on core inflation.
- In the final quarter of 2015, headline inflation rose by 0.4%, leaving the annual rate at a benign 1.7%. Core inflation increased by 0.55%, taking the annual rate to just 2.0%.
- Not only was this figure at the bottom end of the RBA’s 2-3% medium-term inflation target, it marked the slowest annual increase since the June quarter of 2012.
- Looking ahead to today, headline inflation is expected to increase by 0.2%, leaving the annual rate unchanged at 1.7%.
- Core inflation is tipped to rise 0.5%, taking the annual rate to 1.95%, below the RBA’s target band if realised.
- Although interest rate futures indicate that there’s little chance that the RBA will deliver a 25 basis point rate cut come May 3 — pricing the odds at just 15% — the inflation report has a knack of heralding changes in Australian interest rates.
- Underlining this point, of the 28 rate movements made during Glenn Stevens’ tenure as RBA governor, 15 have directly followed the release of the inflation report.
The report will hit the screens at 11.30am AEST.
Business Insider will have full coverage, including the reaction from financial markets, as soon as the data drops.