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

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Australia’s September quarter consumer price inflation (CPI) report is about to be released.

It’s perhaps the most highly anticipated domestic data point we’ve seen since the last inflation report in late July, bolstered by the knowledge that the last two times it’s been released, it’s been followed by a rate cut from the Reserve Bank of Australia (RBA).

While most in markets, be they economists, analysts or investors, don’t think that another weak outcome will be enough to see the RBA cut rates again in November, one only has to look at what happened when the March quarter report was released in late April to see this report can change interest rate expectations in an instant.

Back then, as now, markets didn’t think think there was much chance that the RBA would reduce the cash rate below 2%. Then the Q1 report came along, a figure so low that it prompted the RBA to cut rates not once but twice over the next three months.

Needless to say, it has a tendency to surprise, and generate significant amounts of market volatility.

Here’s the state of play:

  • In the June quarter, headline CPI rose by 0.4%, leaving the year-on-year increase at just 1%, the lowest level seen since the June quarter of 1999.
  • Core CPI, of more significance to markets given its implications for Australian interest rates, increased by 0.45% over the quarter, leaving the year-on-year rate at a record-low level of 1.5%.
  • Today, another tepid increase in inflation is expected, whether measured in headline or core terms.
  • In a poll conducted by Bloomberg, the median economist forecast looks for quarterly increase in headline CPI of 0.5%, seeing the year-on-year rate accelerate to 1.1%.
  • Core inflation — the figure that will drive market movements — is expected to rise 0.4% for the quarter, leaving the increase on a year earlier at 1.55%.
  • The ABS reports a “trimmed mean” and “weighted median” CPI figure, with the average of the two deemed to be core CPI reading. It strips out volatile price movements during the quarter to provide an indication of underlying inflationary pressures.
  • In its most recent statement on monetary policy the RBA saw underlying inflation finishing the year at 1.5%.
  • Along with the view that core inflation may be bottoming out, recent strength in east coast house prices, coupled strength in Australia’s key commodity exports, has seen the odds of a further rate cut from the RBA plummet in recent weeks.
  • Cash rate futures currently put the odds of a 25 basis point rate cut in November at just 14%. Economists, as a whole, share that view, with only 20% of those surveyed by Bloomberg expecting the RBA to cut rates on Melbourne Cup day.
  • Given that sentiment, along with the RBA’s own forecasts, it’s likely that a quarterly core inflation increase of 0.3% or below will be required to get markets seriously contemplating another rate cut in six days time.
  • Still, the RBA appears to be keeping an open mind with the minutes of its October monetary policy meeting noting that the report will “provide an opportunity to consider the economic outlook, assess the effects of previous reductions in the cash rate and review conditions in the labour and housing markets”.

The Australian Bureau of Statistics will release the report at 11.30am AEDT.

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

I’m David Scutt and you can follow me on Twitter at @David_Scutt. I’ll be covering the release live.

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