Australian inflation is set to remain subdued with the ABS due to publish its December quarter update today at 11:30am (AEDT). The effects of government policy decisions in response to the onset of the pandemic continue to weigh on inflation; headline CPI is currently 0.7%Y/Y after rebounding from a 23-year low in Q2 (-0.3%), while the RBA's preferred trimmed mean measure is at a record low of 1.2%Y/Y.
As it stands | CPI
Australia's headline CPI rebounded by 1.6% in the September quarter — its fastest rise since Q2 2006 — lifting the annual pace to 0.7% from -0.3%. Trimmed mean inflation recovered from its first ever quarterly decline in Q2 (-0.1%) rising by 0.4% in Q3, though the pace through the year remained at its slowest on record at 1.2% (full review here).
The reversal of government policy decisions in response to the pandemic crisis drove the rebound in inflation in the September quarter. Notably, child care costs returned to more normal levels for most of the country after the Federal government made those services free between 6 April to 12 July, though the policy still applied in Victoria due to the state entering a second shutdown. The other major contributor was a lift in petrol prices, in line with a rebound in global oil prices as economic activity got going again after earlier shutdowns. Meanwhile, household durable goods and private vehicles added modestly to inflation in Q3.
Housing costs continued to restrain inflation, with new dwelling costs held to a 0.5% rise in Q3 as the Federal government's HomeBuilder grants scheme reduced the out-of-pocket cost for new eligible dwellings, and rents (-0.2%) declined again due to elevated capital city vacancy rates and mechanisms that enabled tenants impacted by the adverse economic conditions to negotiate reductions. A range of cost-saving measures to support households has also weighed on inflation, including freezes in property rates by local governments, state government initiatives to lower utilities costs, and private health insurers delaying premium increases.
Market expectations | CPI
The median estimate is for the headline CPI to print at 0.7% in Q4 between a band of estimates ranging from 0.4% to 0.9%, with the annual pace expected to hold at 0.7%. Meanwhile, the trimmed mean measure is anticipated to come in at 0.4% in the quarter, with the annual pace to ease to 1.1% from 1.2%.
What to watch | CPI
Recently, the ABS published this article outlining the policy-related impacts that will be evident in the December quarter CPI. Specifically, this includes the Federal Government's HomeBuilder grants ($25k), as well as additional incentives on offer by the state governments in Western Australia and Tasmania ($20k), with these measures to result in a decline in new dwelling costs by owner-occupiers. Also weighing will be the effect of a $600 electricity rebate for households in Perth. Note also that since the previous release, the ABS has completed its annual re-weighting of the CPI baskets (full details here). To account for the significant shifts in consumption patterns that have occurred since the onset of the pandemic, the ABS advises that around 20% of the weight of the CPI will come from higher frequency data sources such as retail sales and scanner data.