It looks like we’re seen the low-point for inflation in Australia, at least in the current cycle, and that means the RBA is likely to remain “comfortably on the sidelines” well into 2017.
That’s the view of Annette Beacher, chief Asia-Pacific strategist at at TD Securities, whose is emboldened by the release of the latest monthly Melbourne Institute inflation gauge earlier today.
According to the survey, a private-sector measure of price pressures in Australia, inflation grew by 0.1% in November, leaving the year-on-year increase at 1.5%.
While still indicative of tepid price pressures, Beacher says the low point in both tradable and domestic inflation has now passed, pointing to the charts below.
Here’s the gauge’s relationship to tradable inflation, that which is influenced by global forces:
And for domestic prices, or non-tradable inflation:
Beacher says that “the trend pickup in the monthly measure of domestic inflation is worth noting, even if the monthly measure has recently under-estimated the official measure”.
She also says that “tradable inflation is also grinding higher, with the monthly gauge historically leading the official measure”.
Given these trends, Beacher expects that both tradable and domestic inflation will “step higher” in the December quarter when the official CPI report is released by the ABS in late January next year.
“The low point in both tradable and domestic inflation has passed, limiting the scope for a shock ‘downside’ print for Q4 CPI,” she says.
In regards to underlying inflation — of more importance to the RBA when it comes to interest rate settings — Beacher believes it will ease slightly to 1.45% year-on-year, something she suggests “would be yet another print that is in line with the RBA’s 1.5% year-on-year projection”.
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