Aussie Monthly CPI Preview

Watch two services categories

Australia’s January CPI will be released tomorrow.

We expect year-ended headline inflation to have been ~3.5% y/y, similar to the 3.4% y/y outcome for December.

• In monthly terms, we expect a small decline in the CPI of 0.2-0.3% m/m, with seasonal weakness a key contributing factor.

• On an annualised 3m/3m basis, CPI inflation is expected to have been 2.8% in January. Excluding holiday travel and ‘volatile’ items, we also anticipate an annualised print of ~2.7% on the same basis.

A little below 60% of the CPI basket by weight is updated in January, with little new information on services inflation. For that reason, markets need to be careful not to overreact to any potential ‘miss’ relative to consensus.

BUT we recommend watching two services categories that are updated: maintenance & repair of dwellings and cleaning, repair & hire of clothing. We expect both of these components to exhibit ongoing ‘stickiness’ amid relatively strong growth in labour costs.

We think the RBA will be comfortably ‘on hold’ for a while now and until there are clear signs of labour market deterioration.