Australian inflation is expected to print with a 7 handle in today's Q3 CPI data, due at 11:30am AEDT, marking a new high since 1990. The RBA's rate hiking cycle commenced in May with the cash rate rising by 250bps so far. At the October meeting, the RBA downshifted to a 25bps hike after four consecutive 50bps increases, coming ahead of the expected peak in inflation in the December quarter.
As it stands | CPI
Inflation rose further above the RBA's 2-3% target band in the June quarter. The headline CPI was 1.8% in the quarter, lifting the annual pace from 5.1% to 6.1%; the trimmed mean or core rate advanced by 1.5%q/q to 4.9%Y/Y (from 3.7%).
The rise in Australian inflation has been predominantly driven by global factors stemming from the disruptions to global supply chains caused by the pandemic and the war in Ukraine. The nation's strong economic recovery from the pandemic has also contributed to rising inflation. Reflecting this, rising goods prices have contributed strongly to Australian inflation with only a modest contribution coming from services.
The main contributors to the rise in inflation have been new dwelling costs, fuel and more recently from higher grocery prices. Beyond these effects, price pressures have gradually broadened out across the CPI basket driving the uplift in core inflation.
Market expectations | CPI
Headline CPI is expected to print at 1.6% in the quarter between a wide range of forecasts from 1.1% at the low end to 2.0% on the top side. Annual inflation is forecast to come in at 7%, its highest since 1990. With price pressures broadening, core inflation is set to rise further. The median forecast for the trimmed mean rate is 1.5%q/q and 5.5%Y/Y.
What to watch | CPI
There is expected to be a slight easing in headline inflation in Q3 to 1.6% from 1.8% in Q2. Beneath the surface, the major drivers of inflation are likely to be food and new dwelling costs. Food prices remain on the rise due to a combination of supply pressures and higher input and freight costs. New dwelling costs are set to add further to inflation on the back of sharply rising materials and labour costs and as government subsidies continue to unwind. The easing will be driven by electricity and fuel prices. Although wholesale energy prices surged in the quarter, electricity prices are expected to fall because state governments responded with varying rebate schemes to support households. Meanwhile, fuel prices fell sharply in the quarter reflecting declining crude oil prices and the effects of the federal government's excise tax cut. Looking ahead, Australian inflation is set to rise further next quarter (the RBA forecasts the peak at 7¾ per cent) as the electricity rebates and fuel excise tax cut come off.
