Australia Q1 2014CPI is due today at 11.30am Sydney time, which is 0130GMT. I did a quick heads up here.

Again:

Q1 2014 CPI

The ‘headline’ result is the q/q CPI for Q1:

  • expected is +0.8%,
  • prior was +0.8%

For the y/y:

  • expected is 3.2%, prior 2.7%

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For the ‘trimmed mean’ (which is the measure the RBA pays most heed to): it is the ‘core’ inflation figure where the RBA target band is 2 -3%.

For the q/q:

  • expected 0.7%,

  • prior 0.9% q/q

For the y/y:

  • expected is 2.9%, prior 2.6%

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Finally, there is the ‘weighted median’ CPI:

  • For q/q: expected is 0.7%, prior was 0.9%

  • For y/y: expected is 2.9%, prior was 2.6%

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OK, so what’s gonna happen?

The previous CPI release came in way above expectations, (more here, too: Analysts reactions to the CPI) and it sparked early concerns that the RBA easing cycle was over, a possibility that has only grown as economic data has, on the whole, been on the improve since. Indeed, since the release the RBA has well and truly abandoned its mild easing bias and shifted to neutral .

Expectations today are for inflation to remain elevated (expectations for the various CPI measures are in the info, above), and are indeed for readings close to the upper band of the RBA’s target range (2 – 3%). While expectations are elevated, a reading higher than expectations will add to market chatter of rate hike expectations. BUT, note – the RBA has a neutral bias at present (and the government isn’t happy about it), and they have already foreshadowed higher inflation readings (in its February quarterly Statement of Monetary Policy). I think it is likely that the RBA will maintain its neutral bias, unless data comes in well above expectations – i.e., a topside surprise in the data.The RBA’s current focus is on getting economic growth, not on inflation, which they believe is contained.

Of course, if the data comes in below expectations, the neutral bias will remain entrenched.

What about the AUD?

  • If the inflation data prints higher than expected then RBA rhetoric to talk down the AUD (which has diminished greatly of late) will dissipate further. If the data prints higher, there is more topside for the AUD.
  • If the inflation data comes in lower than expected (suggesting the inflation scare has passed) then we should start to see more jawboning of the AUD from the RBA in attempt to get it lower

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Other things to be aware of include the composition of the data (notably tradeable vs. non-tradeable inflation, and also the government component of price rises – this was significant in the previous release: Aussies Stunned By Inflation Surprise … is ‘government inflation’ to blame? …. and this will be a factor looked at in today’s data)