Official Australian inflation for July to September 2017, due at 0030 GMT Wednesday 25 October 2017

I posted previews here:

And, here is another, this time via Westpac (bolding mine):

Westpac's forecast: 0.7%

  • (compared to mkt f/c: 0.8%, Range: 0.7% to 1.2%)

The Q2 CPI printed 0.2% compared to the market median of 0.5%.

  • The annual rate moderated to 1.9%yr from 2.1%yr in Q1.
  • The core measures rose as expected at 0.5%qtr highlighting just how modest the broader inflation picture is outside of housing or health.
  • The annual pace of the average of the core measures was flat at 1.8%yr.

Westpac is forecasting a 0.74% Q3 rise in the headline CPI of which, 0.47ppts come from energy.

  • Ex-energy (household electricity and gas) inflation rises 0.27%

Core inflation is forecast to print 0.3%qtr (0.29%) holding the annual rate flat at 1.8%yr. The trimmed mean forecast is 0.27% while the weighted median forecast is 0.32%. The two quarter annualised pace of core inflation decelerates to 1.7%yr from 2.1%yr, below the RBA's target band

--

Note , in addition to this preview Westpac sent out a huge note last week as an extended preview. Note this (bolding mine):

  • The surprise 0.6% fall in nominal retail sales in August and the downward revision to the July number (0% to -0.2%) also point to subdued price pressures in the retail sector in the September quarter.
  • The other issue challenging the outlook for inflation is the expected revisions to the weights to be used in the Consumer Price Index. The revised weights (reviewed every 6 years) are aimed at a more accurate mix of the expenditure patterns of consumers. The net impact is typically negative since consumer spending tends to rise for items where relative prices have declined and vice versa. The Australian Bureau of Statistics estimates that previous changes in weights have lowered the CPI by around 0.2 percentage points. Our preliminary estimates point to a reduction in the measure of the CPI of a little more than this benchmark with the headline rate being reduced by up to 0.4% and the underlying by 0.3%

On implications for the Reserve Bank of Australia:

  • there is a significant risk that inflation falls short of the RBA's current forecasts in 2018 and 2019. However financial stability risks preclude cutting rates.
  • On the other hand raising rates in such an environment seems equally unnecessary while effective macro prudential tools are available to deal with unwelcome developments in asset markets.

---

There are more moving parts in this data release than normal.