Westpac's Australian Q3 CPI forecast: Justin Smirk

Westpac's Australian Q3 CPI forecast: Justin Smirk
Westpac's Australian Q3 CPI forecast: Justin Smirk

EXPERT OBSERVATION

Westpac’s forecast for the September quarter headline CPI is 0.5%qtr which will see the annual pace ease to 2.0%yr from 2.1%yr.

Westpac’s forecast leaves the two quarter annualised pace at 1.6%yr.

The September quarter is a seasonally strong quarter with the ABS projecting a seasonal factor of +0.30ppt. However, this is larger than the average of the June quarter seasonal factor for the previous two years (average 0.27ppt) so there is a risk that this estimate will be revised downward.

Core inflation is forecast to print 0.3%qtr (0.31% at two decimal places) seeing the annual pace ease to 1.8%yr from 1.9%yr. The trimmed mean AND weighted median are both forecast to rise 0.31%.

The two quarter annualised pace of core inflation eases back to 1.5%yr from 2.0%yr putting inflation momentum below the RBA’s target band.

We have lifted our Q3 forecast (it was 0.3%qtr) due to rising petrol prices (impact is set to be even larger in the December quarter) plus the impact of drought on fresh fruit, lamb and cereal product prices (beef prices have been falling as cattle have been sold).

We have also made a small allowance for the introduction of GST on imported goods worth less than $1,000.

The big unknown this quarter is the impact of changes to childcare rebates. Back in 2007 and 2008 increases in rebates saw childcare prices fall between 20% and 30% each year.

This time the impact appears to be somewhat less but we have not found a way to confidently estimate it. Our -7% forecast is our “best guess” with the limited information. 

Traded prices are forecast to rise 1.2% in the quarter to be up 1.8%yr, while non-traded prices are forecast to rise 0.1%qtr/2.0%yr due to moderating housing costs moderate and falling childcare.

Core inflation remains below the bottom of the RBA target band due moderating housing costs.

Overlay a competitive deflationary cycle in consumer goods and it makes it hard to see core inflation breaking much higher.

Market forecasters over estimated the quarterly change in the CPI for the last seven quarters by an average of +0.14ppt. Will they do it again making it two consecutive years of overestimating inflation?

Justin Smirk is a Senior Economist for Westpac

Tags: 
Cpi Westpac

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