Australia: Headline CPI eased to 1.8%/y - TDS

Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, points out that Australia’s underlying inflation, which is also the RBA’s policy focus, remained at 1¾%/y in the Dec qtr as the Bank predicted last November.

Key Quotes

“Headline CPI eased from 1.9% to 1.8%/y, although being steady at around 1¾%-2%/y for nearly two years masks divergent trends between tradable inflation (+0.6%/y) and domestic inflation (at +2.4%/y).”

“The RBA’s November Statement on Monetary Policy (SoMP) predictions of above-trend growth and return-to-target inflation relied on a flat OIS strip, AUD at $US0.73, TWI at 63 and Brent oil at $US72bbl. OIS is inverted, AUD is $US0.718, TWI is 61 and oil is $US61bbl, a combination that leaves the inflation outlook a little higher, but we don't look for changes to the RBA's profile next week.”

“In contrast, Sep qtr GDP was a material disappointment (+0.3% cf mkt +0.6%) and so far Dec qtr isn't unlikely to post a substantial rebound, so a downgrade to Dec qtr annual growth from 3.5% to 3.0%/y is likely. We also look for a trim to GDP growth over 2019 from 3.25% to 3.0%.”