Your 10-second guide to today's Australian inflation report

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It’s here. Australia’s highly anticipated June quarter consumer price inflation (CPI) report is about to arrive.

From your wage increase to interest rates, investment returns to movements in the Australian dollar, it is arguably the most important data release for Australian financial markets and the broader Australian economy.

Today will be no exception. Underlining this point, of the 29 rate movements that have occurred under Glenn Stevens’ tenure as RBA governor, 16 have directly followed a CPI report.

It also has a knack of delivering the unexpected — just ask those who thought the next move in Australian interest rates would be higher, a view many held before the March quarter CPI report arrived in late April.

It can and does surprise. As such, it’s a blockbuster event for financial markets.

Here’s the state of play.

  • The March quarter CPI report was incredibly weak. Headline inflation fell by 0.2%, marking the first time since the final quarter of 2008 that consumer prices decline in any one quarter. The decrease left the year-on-year inflation rate at just 1.3%, the slowest increase seen since Q2 2012.
  • Core inflation, far more important to financial markets given its implications on Australian interest rate settings, grew by just 0.15%, the weakest quarterly increase since 2003. It saw the year-on-year rate — an average of the ABS’ trimmed mean and weighted median CPI figures — tumble to 1.55%, the lowest level on record.
  • The sharp deceleration in core inflation, well below the RBA’s 2-3% medium-term inflation target, had an immediate impact, seeing the RBA cut interest rates to a record-low level of 1.75% just six days later. The bank also slashed its inflation forecasts in response, leading many to speculate that another rate cut, potentially in August, was likely.
  • Looking ahead to today’s release, many expect the benign inflation figures of Q1 to be replicated in Q2.
  • Headline inflation is tipped to rise 0.4% for the quarter, leaving the year-on-year rate at just 1.1%. If correct, it will mark the slowest year-on-year increase since Q2 1999.
  • Core inflation is also expected to increase by 0.4% for the quarter, leaving the year-on-year rate at 1.4%. That would be the lowest level on record, displacing the previous record set just three months earlier.
  • Heading into the release, 24 of 25 economists surveyed by Bloomberg expect that core CPI reading will be low enough to prompt another rate cut from the RBA on August 2, taking the official cash rate to a record-low level of 1.5%.
  • Financial markets are less certain, attaching around a two-in-three chance that a rate cut will be delivered. Looking further ahead, cash rate futures are pricing in a possibility that rates will be cut not once but twice before the year is out.
  • Given those expectations, it appears that the risks today are skewed towards a hotter-than-expected core inflation figure arriving.

We’ll soon know the answer for sure. The Australian Bureau of Statistics will release the CPI report at 11.30am AEST.

Business Insider will have full coverage as soon as the data drops.

You can follow me on Twitter: @david_scutt

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