Today’s Australian inflation data is here: Australia Q3 CPI: +0.5 % q/q (vs. expected +0.4%)
Analysts are beginning to revise their forecasts of an RBA rate hike.
CBA chief economist Michael Blyth:
- Q3 CPI data will reinforce the RBA preference for a period of ongoing stability in interest rates
- He will review his cash rate forecast
- Current forecast is for the RBA to be on hold until Q1 2015
JP Morgan:
- Looking forward … inflation fundamentals … pretty benign
- “the economy still carries a fair amount of slack (the jobless rate is rising and rates of capacity utilization are below average), wage pressures are at multi-decade lows, corporate pricing power is weak, and the pass through of lower AUD to higher prices for imported products will not continue indefinitely”
- Global inflation pressures also easing
- Forecasts inflation to stay in the bottom half of the RBA’s comfort zone in the quarters ahead
- RBA has scope to lower the cash rate, should it become necessary to provide further support to demand
- Doubts this will happen
- “low inflation, alongside macro-prudential policies likely to be announced some time soon, which will mitigate risks in investor housing, mean the RBA will have scope to move. We believe, however, that it would take a confluence of pretty adverse factors to convince the ‘reluctant cutters’ at the Bank that further policy action was needed”
ANZ:
- Say Q3 CPI data unlikely to have much bearing on the monetary policy debate
- “While the RBA may need to upgrade its forecasts due to the weaker AUD (its latest forecasts were based on an AUD of USD0.93), they will be willing to accept inflation in the upper end of the 2-3% target band amidst weak labour market conditions, subdued capital investment outside of mining and downside risks emanating from Chinese growth and commodity prices”
- ANZ retain their view that the RBA will remain on hold for a considerable period
- First hike forecast in May-2015
Westpac:
- We are seeing a recovery in housing inflation
- Dwelling purchase costs rose 1.1%qtr which is a strong number following from the 1.6% rise in Q2
- Rents continue to rise around trend with a 0.7% rise in Q3
- We are seeing distinct weakness in consumer discretionary items in particular clothing & footwear (–1.0%qtr), and household contents (0.4%qtr) and a seasonally soft 0.6% rise in holiday travel
- In a nutshell, the recovery in housing is underpinning domestic inflationary pressure but the weak consumer market (and most likely the increased competition in this space) is providing a significant offset despite the lower AUD. So while the print was broadly in line with our expectations, the weakness in consumer discretionary goods suggest that the outlook for inflation remains quite benign even give the recent weakness in the Australian dollar
Matthew Circosta, an economist at Moody’s Analytics in Sydney:
- Lower inflation “certainly supports their case to keep monetary policy steady”
- “There are other factors that they’re going to have to take into account when they’re setting policy and that’s the currency and the global risks that are playing out, but the bias is certainly toward monetary easing.’
