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27 Jan 2016
AUD: Q4 CPI is still in the groove – ANZ
FXStreet (Delhi) – Jo Masters, Senior Economist at ANZ, suggests that Australia’s Q4 CPI data were broadly in line with expectations and reinforce that inflation is neither a constraint nor a catalyst for monetary policy action.
Key Quotes
“Underlying inflation is running around the bottom of the RBA’s 2-3% band, while headline inflation continues to be weighed down by fuel. There were signs of slightly stronger pass through from the lower AUD. By contrast, domestic inflationary pressure remained muted, with market services inflation moderating a touch and in line with weak growth in unit labour costs.
Overall, we’d characterise underlying inflation as running at around or a little below the bottom of the RBA’s 2-3% target.
There appear to be some signs of slightly stronger pass through from the weaker currency to inflation.
Moreover, price rises were broadly based in the December quarter, with over 50% of the CPI basket rising by more than 2.5%. This is a sharp jump from the previous quarter, so it will be a key factor to watch in the next set of numbers.
Meanwhile, non-tradable inflation remained steady at 2.6% on an annual basis, in line with weak wages growth. Market services inflation – most closely aligned with domestic conditions – rose 1.2% y/y in Q4, down from 1.5% the previous quarter.
The low inflation environment is unlikely to be a catalyst for policy action given our expectation that underlying inflation will move back within the RBA’s 2-3% band in early 2017. However, it not a constraint on policy action should demand need a boost. We continue to closely watch demand indicators, including the December partials next week.”
Key Quotes
“Underlying inflation is running around the bottom of the RBA’s 2-3% band, while headline inflation continues to be weighed down by fuel. There were signs of slightly stronger pass through from the lower AUD. By contrast, domestic inflationary pressure remained muted, with market services inflation moderating a touch and in line with weak growth in unit labour costs.
Overall, we’d characterise underlying inflation as running at around or a little below the bottom of the RBA’s 2-3% target.
There appear to be some signs of slightly stronger pass through from the weaker currency to inflation.
Moreover, price rises were broadly based in the December quarter, with over 50% of the CPI basket rising by more than 2.5%. This is a sharp jump from the previous quarter, so it will be a key factor to watch in the next set of numbers.
Meanwhile, non-tradable inflation remained steady at 2.6% on an annual basis, in line with weak wages growth. Market services inflation – most closely aligned with domestic conditions – rose 1.2% y/y in Q4, down from 1.5% the previous quarter.
The low inflation environment is unlikely to be a catalyst for policy action given our expectation that underlying inflation will move back within the RBA’s 2-3% band in early 2017. However, it not a constraint on policy action should demand need a boost. We continue to closely watch demand indicators, including the December partials next week.”