The TD Securities Monthly Inflation data is out, and its both benign and hostile.
Benign because at just 0.2% in March, after a similar result in February, the outcome is right in the middle of the RBA’s 2-3% inflation band if you annualise it.
But hostile because with year-on-year inflation already in the top half of the band at 2.7%, there is a real chance that if the Australian dollar does actually fall as the RBA expects — or some other form of economically-induced price pressure appears — there is little room before the top of the band is reached, or breached.
With this in mind, Annette Beacher, Head of Asia-Pacific Research at TD Securities, said:
With this March report we have finalised our March quarter CPI forecasts, and there is little comfort for the RBA. We expect headline inflation to rise by 0.6 per cent in the quarter, to be 3.0 per cent higher than a year ago, and we forecast underlying inflation to rise by 0.8 per cent in the quarter, for an annual rate of 2.9 per cent.
We suspect the recent and unexpected pickup in inflation has prevented the RBA from talking down the currency in recent months.
The RBA won’t like that, especially as Beacher also added that the “use-by date for the emergency cash rate is approaching fast.” That’s code for ‘the RBA needs to raise rates very soon’.
It will be interesting to see what they say about the dollar, and inflation after tomorrow’s RBA Board meeting.