Australia’s December 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, especially when it come to the outlook for official interest rate settings.
Australian inflationary pressures have been close to non-existent since early 2016, sitting at or below 2% for much of that period.
Economists expect that trend to continue today, with some anticipating that underlying inflationary pressures will move further away, rather than closer to, the RBA’s 2-3% annual target.
That means today’s report will be a blockbuster event, especially with growing expectations the RBA may cut Australia’s cash rate by the end of this year.
Here’s the state of play.
- The CPI report is based off price movements in 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 last year, headline CPI — including all price movements in the ABS basket — rose by 0.4%, leaving the increase on a year earlier at 1.9%.
- Indicating that inflationary pressures continued to be driven by price movements linked to government, the “market goods and services ex volatile items index”, tracking private sector inflationary pressures, grew by just 0.5% over the quarter and 1.1% over the year.
- This reading excludes volatile price movement for items such as utilities, property rates and charges, child care, health, urban transport fares, postal services and education, among other areas.
- Underlying inflation — which is more influential on the outlook for official interest rate settings — rose by 0.32%, leaving the increase over the year at 1.75%.
- Underlying inflation is the average of the ABS trimmed mean and weighted median measures, and is seasonally adjusted unlike the headline CPI measure. It is designed to strip out volatile price movements seen during the quarter.
- The quarterly increase in underlying inflation was the weakest since the March quarter of 2016. The annual rate was also the lowest since the March quarter last year.
- Those trends are likely to be repeated in today’s report, according to economists.
- The median forecast for headline inflation looks for a quarterly gain of 0.4%, a result that will see the year-end increase slow to 1.7% without revisions to prior data.
- For underlying inflation, the median forecast looks for a quarterly lift of 0.45%, leaving the increase over the past year unchanged at 1.75%.
- Such a result would be in line with the RBA’s forecasts offered in November.
- Westpac Bank is forecasting that both headline and underlying inflation will undershoot market expectations by some margin, seeing both measures accelerate away from the RBA’s target. It has a better track record than most for accurately forecasting Australian inflationary trends.
- Financial markets are pricing in a greater than even chance the RBA cash rate will be reduced by the end of this year.
- Based on commentary from the RBA late last year, the bank believes the next move in the cash rate is still likely to be higher. Updated economic forecasts from the RBA will be released next week.
The inflation report will arrive at 11.30am AEDT.
Business Insider will have all of the details and potential ramifications as soon as it’s released.