Aussie Q4 CPI In-depth

Encouraging signs

Australia’s Q4 CPI inflation was below market expectations and the RBA’s November SMP forecasts. We were below consensus and the key underlying and ‘domestic’ inflation metrics printed in line with our expectations.

Next Tuesday’s RBA Board decision is an ‘on hold’ no-brainer. The Bank will publish updated forecasts in the overhauled Statement on Monetary Policy at the same time as the policy decision. We expect the new SMP format to be more concise and punchier than previously.

The Bank’s near-term underlying inflation forecasts are likely to be lowered a little, but we doubt the forecasts further out will change much.

It’s time, however, in our view for the Board to drop this language from the post-meeting statement and suggest that they have done enough:

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”

Our view is the RBA Board will keep the cash rate at 4.35% for a while now and until there are clearer signs of labour market deterioration. Labour market conditions continue to gradually ease but the level of spare capacity remains relatively modest.