Société Générale with a preview of the CPI data from Australia on Wednesday 25 October 2017 (0030 GMT) for July - September
Underlying inflation likely remained subdued in 3Q
- But hikes in retail electricity prices as a result of bottlenecks in power generation are likely to begin having a discernible impact on consumer price inflation. However, the exact timing and extent of these increases is uncertain and likely to vary across states.
Several factors point to continued weak underlying price pressures in 3Q
- One, petrol prices continued to decline ... . will shave 0.1% off the CPI
- Two, we suspect that food prices were also weak given unusual weakness in nominal retail sales of food in July and August
- Three, with strong growth in the supply of homes, especially apartments, growth in rents is likely to have remained at decade- lows - 2Q growth was just 0.6% yoy, the lowest level since 1994
- Four, moderating price gains for new dwellings suggest that the re-acceleration of this component in the CPI over the past year is likely to reverse, although the large gap between it and other measures of residential house prices is a source of some uncertainty. Rents and the cost of new dwellings together account for 15.4% of the index, so they are of key importance.
- More fundamentally, persistently low wage and unit labour cost growth indicate that domestic cost pressures remain low, and although the trade-weighted exchange rate depreciated in both 2Q and 3Q, the declines have been slight, especially compared to the gains in the preceding six quarters. Hence, imported price pressures should have remained low as well. Inflation is likely to strengthen in the coming quarters.
The substantial hike in the national minimum wage (and wages connected to it) in July is likely to add to wage pressure over the coming quarters. In addition, steep increases in utility prices are likely to continue.
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