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Analysts at Australia and New Zealand (ANZ) Banking Group, express their view on the Australian inflation expectations after the Consumer Inflation Expectations ticked higher for August.

Key Quotes:

“Market-based inflation expectations, both short and long term, have fallen a lot over the last year.

Worryingly for the RBA, the market now expects inflation to average around 1.5% over the next 10 years and to stay below 2% for around 25 years.

Given the degree to which the inflation swaps curve has fallen and flattened, we think even a small positive headline CPI surprise for the September quarter could see front-end inflation swaps sell-off somewhat. However, for longer-term swap rates to rise materially, we would need to see a number of quarters of annualized core inflation of around 2%. This looks unlikely anytime soon.”