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