Societe Generale is at the lower end of forecasts for today’s Australian inflation number, calling for a quarter-on-quarter rise of just 0.1% in the headline CPI, for an annual rate of 1.6%. The market consensus estimate is for 0.3% and 1.8%.
In its Asia Morning call note to clients today, Soc Gen argues the drivers for this outcome are the obvious effects of the falls in global oil prices combined with the effects of the carbon tax abolition washing through.
However, Soc Gen also expects core inflation to remain much more stable because those two key factors are but temporary:
Core measures will be far more stable; we expect a gain of 0.5% qoq, which would reduce the annual rate of the trimmed mean measure from 2.5% to 2.1%, and the weighted median by the same 0.4pp margin to 2.2%. Such an outcome would be only fractionally weaker than the RBA’s forecast from November of a 2¼% rate in underlying inflation in Q4, and would be unlikely to be seen by the Board as a reason to cut interest rates again. That is all the more so as inflation is temporarily depressed by the repeal of the carbon tax in July of last year, as well as by the US$60/b decline in the crude oil price, which will not be repeated. That said, should activity data warrant a rate cut, inflation concerns would not stand in the way.
So, look to the core.