Australia: Inflation grinding higher as RBA takes note - TDS

Analysts at TDS note that the Australian Feb monthly inflation gauge fell by –0.3%/mth, leaving the annual rate at +2.1%/yr as the monthly trimmed mean fell –0.1%/mth, although the annual rate ticked higher to +2.3%/yr.

Key Quotes

“We have two/three monthly inflation gauge prints for March qtr CPI, and we see plenty of upside with what we’ve seen so far. While there isn’t a perfect historical relationship between the monthly and the more comprehensive official quarterly inflation report we expect a step higher in both tradable and domestic inflation for the Mar qtr.”

“Subject to a shock March monthly print, we expect the official Mar qtr trimmed measure to increase by +0.65%/qtr, or increase from 1.64%/yr to 2.0%/yr, and combined with the weighted median, we expect “underlying” inflation to increase from 1.55% to 1.92%. This would be a little firmer than the RBA’s 2%/yr projection for mid-2017.”

“The acceleration in monthly domestic inflation is notable even if it was underestimating the official measure. Dec qtr domestic CPI picked up from 1.7% to 2.1%/yr, and based on the monthly guidance, we see another step higher to 2.4%/yr for Mar qtr.”

“Monthly tradable inflation has been elevated for a while, but the official measure has been slow to pick up. For the Mar qtr, petrol price base effects are a significant source of upside, where Mar qtr petrol prices are so far +9.2%/qtr compared with –13.3%/qtr a year ago.”

“For the RBA Board meeting tomorrow

• These monthly inflation reports are closely watched by the RBA, and we expect the RBA Board tomorrow to remain neutral, reiterating that inflation remains low and that current policy settings are “consistent with sustainable growth in the economy and achieving the inflation target over time”.
• The AUD OIS curve is more or less dead flat, lifting to 22% pricing of +25bp by December. TD base case +25bp in November.
• Trading the RBA will be released later today, but there isn’t much to expect for this meeting. We don’t expect any shift from the Bank’s neutral rhetoric until the third quarter.”