Aussie Monthly CPI Preview

Services inflation comes into focus

Australia’s February CPI will be released tomorrow.

We expect year-ended headline inflation to have been little changed at ~3.4% y/y in February.

• In monthly terms, we expect a small rise in the CPI of ~0.2% m/m, with seasonal weakness in holiday travel a contributing factor.

• On an annualised 3m/3m basis, CPI inflation is expected to have been ~2.5% in February. Excluding holiday travel and ‘volatile’ items, we anticipate an annualised print of ~2.7% on the same basis.

Around 73% of the CPI basket by weight is updated in February, compared with less than 60% in January.

All eyes will be on services inflation, with a range of domestic market services prices - accounting for 14% of the CPI basket by weight - updated for February (compared with just over 2% for January).

The two domestic services categories updated for January - maintenance & repair of dwellings and cleaning, repair & hire of clothing - exhibited significant disinflation, printing at +0.3% q/q and +0.9% q/q, respectively.

We don’t expect to see as sharp disinflation across the broader domestic services CPI basket for February, but expect to see some progress in moderating services inflation.

We think the RBA will be comfortably ‘on hold’ until at least later this year and until there are clear signs of labour market deterioration.