Australia December quarter consumer price inflation report (CPI) is about to be released.
Arriving once a quarter, 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 and does, as seen countless times over the past two decades.
Today, inflationary pressures are expected to build, an outcome that will help solidify the growing view that the Reserve Bank of Australia (RBA) will soon begin to lift interest rates, perhaps before the middle of the year.
However, the CPI report has surprised before, and given recent tweaks to the basket of goods and services being measured by the ABS, it’s created even more uncertainty than usual.
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.
- In the September quarter of 2017, both headline and underlying CPI surprised to the downside.
- Headline CPI rose by 0.6% over quarter, leaving the change on a year earlier at 1.8%. Markets were looking for a quarterly increase of 0.8%, seeing the year-on-year rate tick up from 1.9% to 2%.
- Underlying inflation — that which strips out volatile price movements and is of more importance when it comes to the outlook for interest rates — rose by smaller 0.35% over the quarter, leaving the annual rate at 1.88%, below the RBA’s 2-3% inflation target.
- The underlying figure, also referred to as “core” CPI, is the average of the ABS’ trimmed mean and weighted median inflation measures.
- Underlying CPI has been below the RBA’s target for two years.
- Today, both headline and underlying inflationary pressures are expected to increase in the December quarter.
- Headline CPI is tipped to increase by 0.7%, leaving the increase on a year earlier at 2.0%.
- The underlying measure is expected to lift by 0.5%, seeing the year-on-year rate edge up to 1.9%.
- If underlying annual CPI does lift to 1.9%, it would be above the RBA’s year-end forecast for an increase of 1.75%.
- Should underlying CPI meet market expectations, many economists believe it will solidify the view that the next move in interest rates will be higher rather than lower.
- Financial markets are fully priced for a 25 basis point to be delivered by the RBA by November this year.
- Given the view that rates will rise this year, it’s likely markets will react more to a downside miss than an upside beat as it will bring into question whether rates need to increase if inflationary pressures are so weak.
The inflation report will be released at 11.30am AEDT.
Business Insider will have all of the details as soon as it hits the screens.