Australia: Expecting a benign 0.5% inflation print – Westpac

Bill Evans, Research Analyst at Westpac, suggests that Australia’s Inflation Report is due tomorrow and they expect a benign 0.5% on the underlying measure for the quarter.

Key Quotes

“A surprise low number is unlikely to see a cut in the way we saw in April 2016 when the underlying printed 0.17%. But financial conditions and a slowing labour market make the prospect of a hike a long way off. We confirm our view that the cash rate will be hold in 2018 and 2019.”

“The minutes of the Reserve Bank’s Board meeting on April 3 contained a surprise in the final paragraph – “it was more likely that the next move in the cash rate would be up, rather than down”.”

“The timing is particularly pertinent given developments around financial conditions; the jobs market; and a looming Inflation Report.”

“Think back to April 2016. Markets were relatively benign with one cut priced in over the next 12 months. Today markets are priced for one hike by mid-2019.”

“On April 24 there will be another Inflation Report, this time for the March quarter 2018. Westpac (and the market) is once again forecasting 0.5% for the average of the underlying measures. This time, however, the Bank is forecasting 1.75% for 2018 implying an average of around 0.45% for each quarter.”