Australia’s March CPI will be released on 29 April and will include Q1 trimmed mean inflation under the pre-October 2025 methodology. This remains the key focus for the RBA.

We have firmed up our bottom-up Q1 CPI inflation forecasts following today’s February CPI.

March month nowcasts

Our nowcasts for the March monthly CPI and key categories are in the table below.

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Australia’s February CPI will be released on Wednesday, 25 March.

The February CPI will allow us to gauge with some confidence whether underlying inflation in Q1 is likely to have remained as elevated as the RBA expects. The Bank has pencilled in +0.9% q/q for Q1 trimmed mean inflation.

Clearly the conflict in the Middle East means that the February CPI will be somewhat old news. The outlook for inflation is now hostage to how long the conflict persists.

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Australia’s January CPI will be released on Wednesday, 25 February.

The January CPI will provide an early gauge of whether underlying inflation in Q1 is likely to have remained as elevated as the RBA expects. The Bank has pencilled in +0.9% q/q for Q1 trimmed mean inflation but we view the risks as skewed to the downside.

Headline CPI inflation in January will be significantly boosted by electricity prices which will have risen sharply as government rebates ended in December (except in WA).

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New Zealand’s Q4 CPI will be released this Friday.

The release of monthly price data for December allowed Q4 inflation nowcasts to be firmed up. See here for our wrap of the monthly price indicators.

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Australia’s Q4 CPI will be released on 28 January.

Following today’s November monthly CPI we have made some tweaks to our preliminary Q4 CPI preview (available here).

As discussed in our preliminary preview, our Q4 nowcasts are based on the pre-October methodology, including collection frequency and seasonal adjustment of CPI expenditure components (though we do highlight some challenges). This approach means that some of the discounting that occurs in November (e.g. ‘Black Friday’) and December (pre-Christmas sales) does not enter our Q4 nowcasts.

The RBA have said that inflation measures based on the pre-October methodology will remain their primary focus for the time being. Nevertheless, we expect Bank staff to interrogate the monthly CPI detail to get a feel for the momentum of underlying inflation through the quarter.

Our key takeaway is that underlying inflation appears to have moderated a little in Q4 but remained strong and above the RBA’s November SMP assumption (and well above the mid-point of the 2-3% target).

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This is an updated version of a post from early December.

Australia’s Q4 CPI will be released on 28 January and the quarterly report will remain the key focus for the RBA for the time being while they “begin to consider underlying inflation measures constructed using the monthly CPI” (see here).

Before then the monthly CPI for November will be published on 7 January. This is a key release for cash rate watchers as it will allow Q4 trimmed mean inflation nowcasts to be honed.

The ABS have said that the Bank’s preferred quarterly trimmed mean inflation metric will continue to be compiled under the pre-October methodology, including collection frequency and seasonal adjustment of CPI expenditure components (ECs).

Importantly, for those ECs (or individual subcomponents) previously measured in only one month per quarter, the prior approach will continue to be used to estimate quarterly trimmed mean inflation. For those ECs measured every month a quarterly average will still be used.

For example, furniture prices were previously only measured in January, April, July and October but are now measured every month in the monthly CPI. For the purposes of calculating quarterly trimmed mean inflation the ABS will use growth in furniture prices over the 3 months to the first month of each quarter. For Q4, this will be growth between July and October (which we already have).

But our analysis of the detail from the new monthly CPI versus the previous monthly CPI indicator has highlighted some differences which we need to be mindful of when nowcasting quarterly inflation under the ‘old’ methodology.

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Australia’s Q4 CPI will be released towards end-January and the quarterly report will remain the key focus for the RBA for the time being while they “begin to consider underlying inflation measures constructed using the monthly CPI” (see here).

The Bank’s preferred quarterly trimmed mean inflation metric will continue to be compiled under the pre-October methodology, including collection frequency and seasonal adjustment of CPI expenditure components (ECs).

Importantly, for those ECs previously measured in only the first, second or third month of the quarter, the prior approach will continue to be used to estimate quarterly trimmed mean inflation (most other ECs were quarterly averages and that will continue using 3-month averages of monthly CPI data).

For example, furniture prices were previously only measured in January, April, July and October but are now measured every month in the monthly CPI. For the purposes of calculating quarterly trimmed mean inflation the ABS will use growth in furniture prices over the 3 months to the first month of each quarter. For Q4, this will be growth between July and October (which we already have).

The new monthly CPI means that we now have more information about the recent trajectory of inflation for those ECs that were previously measured only once per quarter. This now helps to nowcast quarterly trimmed mean inflation earlier in the quarter.

Previously we estimated and published quite accurate nowcasts of quarterly trimmed mean inflation only after the monthly CPI indicator was published for the second month of the quarter.

More monthly EC inflation data now means we can do this after the receiving the monthly CPI for the first month of the quarter. For example, for ECs previously measured only in the second and third months of each quarter, the advent of monthly data helps us to more accurately nowcast those ECs earlier in the quarter.

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Australia’s Q3 CPI will be released next Wednesday, 29 October.

We have made some tweaks to our preliminary CPI preview (available here).

But the key takeaway is the same: underlying inflation appears to have been strong in Q3 and well above the RBA’s August SMP assumption.

This could make for a spicy RBA Board meeting (3-4 November) given the September labour force release was very soft.

Tomorrow’s Q3 NAB business survey will provide a timely update on Australian firms’ views on the availability of labour which has proven to be a reliable guide to underlying labour market conditions over time.

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Australia’s Q3 CPI will be released on 29 October, just a few days prior to the RBA Board meeting on 3-4 November.

Today’s monthly CPI for August - see here for our analysis - provided important inputs to sharpen our nowcast for Q3 headline and trimmed mean CPI inflation.

Underlying inflation appears to have been strong in Q3 and well above the RBA’s August SMP assumption.

Unless labour market conditions deteriorate noticeably over the next couple of months, a rate cut this year is almost off the table. The initial release of the complete monthly CPI on 26 November for the month of October will make things even trickier (see our view here).

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This release can be used in conjunction with the July CPI to nowcast a good estimate of the Q3 CPI, including on an underlying basis. The RBA’s August SMP had pencilled in a trimmed mean inflation forecast of a little more than +0.6% q/q for Q3.

Around 68% of the CPI basket by weight is price updated in August, with several services categories measured in the mid-month of the quarter. Notably, domestic market services categories with a combined CPI weight of ~14% are updated in August (compared with ~2% in July).

We expect year-ended headline inflation to have picked up a little to +3% y/y in August from +2.8% y/y in July. In monthly terms, we expect the CPI to have fallen slightly. There is considerably uncertainty around this nowcast given surprisingly large increases in travel and electricity prices in July and the potential for surprises to the downside in August.

The 13% m/m rise in electricity prices in July was because of increases in underlying prices and the fact that the $75 quarterly federal government rebate was not available for households in NSW and the ACT. (These regions account for ~44% of electricity by weight in the CPI.) Those households will have started to receive the rebate in August, though households whose billing cycle is in July 2025 will instead receive two instalments in October 2025. We have pencilled in a 3% decline for electricity prices in August but there is huge uncertainty around this nowcast.

In any case, the headline monthly CPI indicator, and the monthly trimmed mean measure for that matter, only garner passing attention at best within the RBA. Assistant Governor Hunter reiterated that view last week:

“…in particular, the trimmed mean metric that gets reported in the monthly indicator really isn’t comparable to the quarterly data that we do look at. So we really don’t look at that series. We don’t think that it’s a good read. And what we do use the monthly indicator for though is looking at the individual components, and so they give us a view bottom up on what might be happening at a top level.”

We expect our preferred measure of underlying inflation, which excludes ‘volatiles’, travel & electricity, to have slowed slightly August. Note that the RBA Board has also highlighted the usefulness of this exclusion measure:

“…[t]hey noted that a measure that removes electricity and some other volatile prices from the monthly CPI indicator has had a closer relationship with quarterly trimmed-mean inflation over preceding years than the monthly trimmed-mean indicator.”

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About 57% of the CPI basket by weight is price updated in July, with only a few services categories measured.

The relative low representation of the CPI basket in the first month of the quarter means that this release is unlikely to garner too much attention inside the Bank. That said, we’d suggest that housing components of the CPI will be the first sub-components the RBA’s inflation analysts will quickly scroll to.

We expect year-ended headline inflation to have picked up from +1.9% y/y in June to around +2.2% y/y in July.

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New Zealand’s Q2 CPI will be released next Monday, 21 July.

Today’s release of monthly price data for June allowed Q2 inflation forecasts to be firmed up.

Note that StatsNZ will put through a correction to the June quarter CPI that is expected to add ~0.1ppts to headline inflation. StatsNZ mistakenly did not include the NZ$25 increase in vehicle relicensing fees on 1 January 2025 in the March quarter CPI and noted that headline inflation was understated by 0.1ppts as a result.

StatsNZ will also update route-level weights for domestic airfares that should have been updated in Q1 but this did not affect headline inflation.

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Australia’s Q2 CPI will be released on 30 July.

While this will be a few weeks after the next RBA Board decision on 8 July, today’s monthly CPI for May - see here for our analysis - provided important inputs to sharpen our nowcast for Q2 headline and trimmed mean CPI inflation.

Underlying inflation looks to have been moderate in Q2 but not quite as low as the RBA had assumed in the May SMP.

Nevertheless, we are sticking with our view that the RBA Board will lower the cash rate by 25bps in July. Underlying inflation has moderated and alternate survey measures of inflation have fallen further in recent months. Market goods & services inflation is below 2%. Q1 GDP growth was also softer than expected and domestic demand growth remained tepid. And the Board appears to lean dovish.

Markets are pricing more than a 90% chance of a rate cut in July. That is, a slam dunk case to cut. We aren’t quite that confident.

We have follow-up 25bp cuts pencilled in for August and, following a pause, November, taking the cash rate to 3.10% by year-end. One risk to this view is that the disinflationary impulse from the housing components of the CPI aren’t quite as disinflationary going forward. Something to keep watching.

Another solid headline inflation outcome

Our bottom-up analysis points to a +0.8% q/q and +2.2% y/y outcome for Q2 headline inflation. On a seasonally adjusted basis we expect the headline CPI to have risen +0.7% q/q.

Government-administered and tradables (ex fuel) categories are expected to have contributed significantly to Q2 headline inflation prior to seasonal adjustment.

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This release can be used in conjunction with the April CPI to nowcast a very good estimate of the Q2 CPI, including on an underlying basis. The RBA’s May SMP had pencilled in a trimmed mean inflation forecast of a little more than +0.6% q/q for Q2.

About 68% of the CPI basket by weight is price updated in May, with several services categories measured in the mid-month of the quarter. Notably, domestic market services categories with a combined CPI weight of ~14% are updated in May (compared with ~2% in April).

We expect year-ended headline inflation to have remained at +2.4% y/y in May.

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New Zealand’s Q1 CPI will be released on Thursday.

Today’s release of monthly price data for March allowed Q1 inflation forecasts to be firmed up. The monthly price indicators (excluding rents) cover ~35% of New Zealand’s CPI, with around half accounted for by food. The monthly rents data provide some insight to the quarterly CPI rents measure (9.5% weight). We have incorporated the updated CPI weights into our Q1 nowcast.

Of course, it would take a very surprising CPI outcome to divert the market’s attention from global developments.

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Australia’s Q1 CPI will be released on 30 April and will be a key input to RBA Board deliberations on 19-20 May. Labour force data for March/April, and Q1 wage price index and retail trade data will also be at hand for the Board. Possibly most important will be some clarity on US tariffs set to be announced in early April.

The February monthly CPI - see here for our analysis - provided important inputs to sharpen up our nowcast for Q1 headline and trimmed mean CPI inflation.

Bounce-back in headline inflation

Our bottom-up analysis points to a +0.8% q/q and +2.3% y/y outcome for Q1 headline inflation (and nearly +0.9% q/q in seasonally adjusted terms).

This would follow consecutive +0.2% q/q outcomes which were significantly dampened by government rebates (mainly energy bill relief) and lower petrol prices.

Administered prices are expected to have contributed significantly to Q1 headline inflation, with large price rises for electricity (waning rebate effect), education (annual price rises) and health (reduction in the proportion of consumers who qualify for subsidies at the start of the year).

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Australia’s February CPI will be released next Wednesday, 26 March.

Nearly 73% of the CPI basket by weight is price updated in February, compared with less than 70% in January.

We expect year-ended headline inflation to have remained at +2.5% y/y in February. In monthly terms, we expect the CPI to have risen +0.1% m/m in February (it’s a seasonally weak month).

The size of the seasonal fall in travel & accommodation prices in February will be important in determining the actual outcome. In contrast, annual price rises for education services are expected to have been large, though smaller than last year. CPI electricity prices are also likely to have continued rising, including because the $1000 state government subsidy for Queensland households will have kept being used up.

We emphasise the importance of underlying measures. Evidence from the NAB business survey and Melbourne Institute inflation gauge suggests that underlying inflation remained around the long-run average in the early months of 2025.

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New Zealand’s Q4 CPI will be released next Wednesday, 22 January.

The RBNZ has already lowered the OCR by 125bps but at 4.25% it remains well above estimates of ‘neutral’.

The combination of weak growth, rising unemployment and moderate inflation should be enough for the RBNZ to lop another 50bps off the OCR in February.

Our estimate of (seasonally adjusted) quarterly underlying inflation up to Q3 already supports a lower OCR. We anticipate another ‘comfortable’ outcome for Q4.

While measures of confidence and some outlook indicators have improved sharply, the weak starting point for the New Zealand economy - including sizeable excess capacity - suggests that there is little risk in getting the OCR swiftly back towards estimates of ‘neutral’.

Q4 CPI inflation nowcast

Today’s release of monthly price data for December allowed Q4 inflation forecasts to be firmed up. The monthly price indicators (excluding rents) cover ~35% of New Zealand’s CPI, with around half accounted for by food. The monthly rents data provide some insight to the quarterly CPI rents measure (9.5% weight).

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But the December labour force release tomorrow is likely to attract even more attention than usual.

Labour market developments are a key input into the RBA Board’s deliberations, with markets pricing more than a 70% chance of a 25bp cash rate cut on 18 February.

The relatively sharp fall in the unemployment rate in November to 3.9% was a surprise. Many expect at least partial retracement of that decline in December. In that vein we address the impact of the “unemployed future starter” effect called out by the ABS a month ago.

Further muddying the picture is that we are now in the period in which labour force data have been volatile in the past few years.

Non-ABS measures of labour market tightness are currently even more important than usual.

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Year-ended headline inflation is expected to have been +2.2% y/y in October, similar to the +2.1% y/y outcome for September. This is based on our expectation for a small fall of 0.3% m/m for the non-seasonally adjusted headline CPI.

Monthly volatility in holiday travel & accommodation prices and lower petrol, rents and electricity prices are expected to account for a large share of the monthly decline in the headline CPI.

This week’s monthly CPI may be less consequential for markets than usual given the latest RBA Board Minutes noted that the Board “would need to observe more than one good quarterly inflation outcome to be confident that…” a decline in inflation was sustainable. A big ‘miss’ would be needed to upset the apple cart.

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