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ANZ analysts are forecasting the Australian headline inflation to print 0.5% q/q for Q2, pushing the annual rate up to 1.4%.

Key Quotes

“A sharp rise in petrol prices is the largest positive for the headline figure, reversing the sharp decline in the prior quarter. Alcohol & tobacco and health-related products and services will also make positive contributions to Q2 inflation.”

“Trimmed mean inflation, the underlying measure of inflation focused on by the RBA, is expected to rise 0.3% q/q. This lowers the annual rate to 1.5%. We see the risks to core inflation for the quarter as balanced.”

“Our forecast for trimmed mean inflation is lower than that published by the RBA in its May SoMP. The Bank needs around 0.5% inflation in the June quarter to reach its 1.6% y/y trimmed mean forecast for June 2019.”

“If inflation comes in closer to what we have forecast, then the RBA’s forecast return to its target band of 2-3% by June 2020 will come under pressure. More likely than not, the RBA would need to revise its current forecast return to 2% trimmed mean inflation to beyond June 2020. This would be consistent with its revised thinking that the NAIRU is now considerably lower, which means the unemployment rate needs to fall further than they previously thought to generate more substantial inflation.”