First impressions of CPI Q2 2015: Justin Smirk

First impressions of CPI Q2 2015: Justin Smirk
First impressions of CPI Q2 2015: Justin Smirk

GUEST OBSERVER

The headline CPI lifted 0.7% in Q2 compared to Westpac’s 1.0% forecast and the market’s expectation for 0.8%. The annual rate is now 1.5%yr compared to 1.3%yr in Q1, 1.7% in Q4 and 2.3%yr in Q3.  

The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.5%qtr compared to market expectations of 0.6%qtr and Westpac’s estimate of 0.5%qtr. In the quarter, the trimmed mean gained 0.56% while the weighted median lifted 0.51%. The annual pace of the average of the core inflation measures is now 2.3%yr, a slight moderation from the 2.4%yr pace in Q1.

The six month annualised pace of core inflation was 2.5%yr in Q2 a moderation from the 2.8%yr in Q1 and moving back toward the 2.1%yr pace at the end of 2015. Core inflation continues to meet the RBA’s expectations for inflation to remain within the band.

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First impressions of CPI Q2 2015: Justin Smirk

 

In the June quarter the expected surge in petrol prices was there (12.2%qtr) but the big surprise for us was the soft print on food, –0.2%qtr, in part due to a very soft –1.2% from fresh fruit & vegetables. Also surprising us on the downside was a –3.4% fall in holiday travel. Clothing & footwear rose much as expected at 1.3%qtr.

Housing costs continue to underpin both core and non-tradeable inflation rising 0.7%qtr driven by a very solid 1.5% rise in dwelling purchase prices. To this was added the solid gains in hospital & medical services (3.4%qtr) and alcohol & tobacco (1.2%qtr). The modest offsets came from pharmaceuticals (–1.8%qtr), audio visual & computing services (–1.6%qtr) and communications (–0.6%qtr). 

Traded goods, boosted by fuel, gained 1.2%qtr/–0.3%yr, while non-traded goods (housing, health and education) were around expectations at 0.5%qtr/2.6%yr. 

Despite the downside surprise on food, the CPI came in much as expected with housing continuing to underpin modest outcomes for core and non-tradeable inflation. 

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First impressions of CPI Q2 2015: Justin Smirk

 

Justin Smirk is senior economist, Westpac Group and can be contacted here.

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Cpi Housing Costs

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