Australia's March quarter CPI inflation data are due to be released by the ABS at 11:30am (AEST) today. With the spillover effects from the Ukraine war adding to existing supply constraints, headline inflation is expected to have accelerated in the quarter to 4.6%Y/Y with fuel, new dwelling costs and food the major contributors. Broadening price pressures are forecast to drive underlying inflation above the top of the RBA's target band to 3.4%Y/Y. Upside surprises to these key inflation rates could prompt the RBA Board to commence its rate hike cycle at next week's May meeting.
As it stands | CPI
Inflation surprised to the upside of market expectations in the December quarter. Headline CPI printed at 1.3% in the quarter, lifting the annual rate from 3% to 3.5%. Underlying inflation measures saw their fastest quarterly increases since at least 2009 as the annual pace returned to the midpoint of the RBA's 2-3% target band for the first time in 7 years. Trimmed mean CPI was 1% in the quarter and 2.6% over the year while the weighted median CPI came in at 0.9%q/q and 2.7%Y/Y.
Rising petrol prices and higher base prices for constructing new dwellings due to fewer grants being paid out under the HomeBuilder scheme remained the main drivers of inflation. However, the key development over the December quarter was the broadening of price pressures. This included prices of consumer durables picking up, with clothing and footwear a key contributor following widespread discounting during the Delta lockdowns in Q3. Meanwhile, eased border restrictions led to rising domestic travel costs. For a full review of the Q4 CPI data see here.
Market expectations | CPI
For headline CPI, the consensus forecast is for the quarterly rate to come in at 1.7% (range: 1.4% to 2.0%) on the back of rising prices for fuel, new dwellings and food. This would lift the annual pace up from 3.5% to 4.6%, its fastest since Q3 2008.
Underlying inflation pressures are expected to rise further after picking up over recent quarters. The key trimmed mean CPI is forecast to print at 1.2% in the quarter, driving the annual rate up from 2.6% to 3.4%. If realised, this would see the trimmed mean at its fastest annual pace since Q2 2009. The forecasts for the weighted median CPI are at 1.1%q/q and 3.3%Y/Y.
What to watch | CPI
An upside surprise on CPI, particularly for the underlying measures, could see markets pulling forward their expected timing for the first RBA rate hike from June into next week's May meeting. Current pricing is firming around a 40bps hike in June as consensus, allowing the Board to take in the Q1 Wage Price Index data (due 18 May). But if today's CPI numbers print above expectations, it will lead to larger upward revisions to the RBA's forecast tables in its May quarterly Statement on Monetary Policy (due 6 May). That could prompt the Board to hike next Tuesday, which if it did would likely be a 15bps increase to 0.25%.