Australia Q3 CPI Preview: No sign of inflation - Westpac

According to Justin Smirk, Analyst at Westpac, despite the surge in electricity and gas prices it is hard to find any broader inflationary pressure in Australian economy.

Key Quotes

“September is a seasonally strong quarter due to the post June 30 price resetting of many administered prices and as such, the ABS seasonal factors moderate our estimate to a seasonally adjusted 0.4%.”

“Key factors in Q3 are: the ongoing grocery competition holding back food prices; the annual repricing of the tobacco excise; surging electricity prices but decent gains in dwelling construction costs (especially in Sydney and Melbourne); almost flatrents; falling health; transport (including fuel) and communication prices.”

“There is a lot of interest in the impact of rising electricity prices in the September quarter CPI. Our forecast for a 16%qtr rise in electricity prices is based on an 18% to 20% surges in electricity bills in Sydney and Adelaide respectively, Melbourne had just a 5% increase as the price adjustment tends to be spread over the September and March quarters while Brisbane is looking at a 12% rise. Perth is not on the national electricity grid and had more modest 10% rise.”

“Considering our forecast headline inflation estimate of 0.74%; we estimate that 0.46 percentage points are contributed by energy costs, indicating that (ex- energy) headline inflation only increased by 0.27%.”

“Core inflation is forecast to print 0.3%qtr (0.29% at two decimal places) holding the annual rate flat at 1.8%yr. The trimmed mean is forecast to rise 0.27% while the weighted median forecast is 0.32%. The two quarter annualised pace of core inflation is forecast to decelerate to 1.7%yr from 2.1%yr - well below the bottom of the RBA’s target band.”

“Traded prices are forecast to be flat in the quarter –0.6%yr, while non-traded prices are forecast to rise 1.0% in Q3, 3.2% driven by rising housing and energy costs.”