Australian CPI Preview: Forecasts from five major banks, inflation likely to be lower

Monthly headline CPI inflation is likely to have fallen in October to 5.2% after the increases in August and September. We expect to see a much lower transport sector inflation print due to base effects from automotive fuel (i.e., oil prices). Housing sector inflation is also likely to have declined, on the back of base effects from electricity prices, while inflation in rents and new dwelling purchases should have remained largely unchanged in our view. Among other sectors, we expect inflation to have picked up slightly in the furnishings, household equipment/services and recreation/culture sectors. Relative to headline inflation, some inflation figures, such as trimmed mean inflation and inflation excluding ‘volatile items’ and holiday travel, are likely to show a more modest decline. 

The inflation number should be still above the RBA’s target but could edge lower in October to 5.0% YoY.

We expect the YoY CPI Indicator to ease from 5.6% in September to 5.1% in October. The YoY forecast translates to a -0.1% change in the indicator for the month. The risk is that the decline could be larger than expected. However, Citi’s Q4 official CPI forecast of 4.5% mechanically requires positive monthly CPI Indicator results for November and December. So a negative October monthly result should not cause alarm.

We expect 5.2% YoY from 5.6% in line with consensus. Year-ended core measures are also likely to slow, but the October number is overweight goods and has low coverage of services, which means October data won’t help much to gauge domestic pressures.

We expect Oct monthly CPI at 5.4% YoY (Sep: 5.6%), cooling off from the big acceleration last month. Volatile fuel prices will have another outsized impact on the monthly CPI print as fuel prices pulled back after surging in the past two months. However, price pressures have proved stickier than expected and we expect rents, utility bills and other domestic costs to keep inflation elevated in Oct. Another big surprise in the Oct print will increase the odds of a Feb hike as we think the Board won't have enough information by Dec to move again, especially after the dovish guidance last month.