Aussie Q3 CPI Preview

No smoking gun either way for the RBA

Australia’s Q3 CPI will be released on 30 October and just before the RBA Board meeting on 4-5 November.

Our bottom-up analysis points to a soft +0.3% q/q outcome for headline inflation. Lower automotive fuel and electricity prices are expected to have subtracted 0.6ppts from quarterly headline inflation.

The RBA has been at pains to say that it is more focused on underlying inflation because the disinflationary effects of government electricity (and other) subsidies are expected to be temporary. Only time will tell if that (largely) turns out to be the case, particularly with a federal election due by May 2025 at the latest.

We anticipate trimmed mean inflation to have been around +0.8% q/q in Q3, similar to the Q2 outcome and in line with the RBA’s August SMP forecast. Point forecasts and detail are below.

Partial information contained in the monthly CPI suggests that domestic market services inflation remained relatively sticky in Q3 but well below the peak.

A Q3 trimmed mean outcome in line with the RBA’s August forecasts wouldn’t change the near-term outlook for monetary policy - which is to stick with the status quo - particularly with signs of labour market resilience.

Several other central banks tightened policy by more than the RBA and/or have policy rates further above estimates of ‘neutral’ compared with those in Australia.

Our central case is for the RBA to start easing policy in February next year, but it could be later. It would likely take an abrupt deterioration in labour market conditions to get a rate cut before February.