Australia March quarter consumer price inflation report (CPI) is about to be released.
Arriving just four times a year, it’s arguably the most important data release on the Australian economic calendar, carrying the potential to shift interest rate expectations in an instant.
It has done so many times before, including not all that long ago.
Today, inflationary pressures are expected to remain subdued, continuing the theme seen in recent years. However, in the absence of an unusually large downside miss, such a result is unlikely to be enough to see the Reserve Bank of Australia (RBA) cut interest rates again.
Here’s the state of play.
- The CPI report is based off price movements of a set basket of goods and services commonly purchased by metropolitan households.
- Individual items fall into 11 broader categories, and are weighted based on estimated expenditure by households.
- The RBA’s annual inflation target is currently 2 to 3%.
- In the December quarter, both headline and underlying CPI surprised to the downside.
- Headline CPI — including volatile price movements over the survey period — rose by 0.6% over the quarter. From a year earlier, it increased by 1.9%.
- Tradable prices — largely influenced by global factors — fell by 0.3% during the year. In contrast, non-tradable prices — impacted by domestic factors — grew by 3.1% over the same period.
- Underlying CPI, also known as core inflation, rose by a smaller 0.42% during the quarter, leaving the increase on a year earlier at 1.87%.
- It was the ninth consecutive report that annual underlying CPI rate came in below the RBA’s target.
- Underlying inflation is the average of the ABS’ trimmed mean and weighted median inflation measures. These readings strip out volatile price movements, providing a better indication on the overall trend in inflationary pressures.
- Today, economists expect another soft inflation result, be it for headline or underlying CPI.
- Headline CPI is expected to increase by 0.5% over the quarter, seeing the annual rate lift to 2% from 1.9%.
- Underlying CPI — of more importance when it comes to the outlook for interest rate settings — is tipped to increase by 0.5%, leaving the change on a year earlier at 1.85%.
- The RBA is currently forecasting that annual underlying inflation will sit at 1.75% by the end of the June quarter. That means that in the absence of a large downside miss today, underlying inflation will be tracking ahead of expectations. That’s important when it comes to the outlook for Australian interest rates.
- The bank expects stronger labour market conditions and firmer economic growth to help lower Australia’s unemployment rate in the years ahead, an outcome that would usually lead to stronger wage and inflationary pressures.
- Earlier this month, the RBA said that it expects the next move in official interest rates will be up, not down.
- Financial markets agree with this assessment, pricing in a full 25 basis point increase in the cash rate by the middle of next year.
The CPI report will be released at 11.30am AEST.
Business Insider will have all of the details and ramifications as soon as it hits the screens.
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