Australia CPI Preview: Forecasts from five major banks, inflation could decline sharply

We expect annual growth in the monthly CPI indicator to slow to 4.1% YoY in November from 4.9% YoY in October. This would be the weakest annual inflation on the monthly measure since January 2022. A result in line with our 4.1% YoY forecast would almost ensure quarterly CPI inflation will print below the RBA’s forecast of 1.0% QoQ in Q4, cementing our view that the cash rate has peaked at 4.35%. Our forecast implies a 0.2% MoM rise in prices. But seasonally adjusted price growth will be stronger and is likely to annualise well above the RBA’s 2-3% target band.

We are expecting an on-consensus Nov CPI print at 4.5% YoY though uncertainty over the monthly CPI indicator is typically wide at 0.9%-pt. Inflation should extend its downward trend, partly aided by the high base last year and a further retreat in fuel prices. Price pressures are broadly receding which likely pins an end to the hiking cycle and the Bank can afford to be patient. The RBA will have 1 more Dec CPI and Q4 CPI print to confirm the disinflation trend before the Feb RBA's meeting and our base case is that the Board is likely to keep a long restrictive monetary stance till August.

Monthly headline CPI inflation for November is likely to show a further decline after dropping from 5.6% in September to 4.9% in October. Our forecast increases the chances that the RBA’s 4Q23 headline inflation forecast of 4.5% is likely to be met, which would support the policymakers’ recent cautious stance on further monetary tightening and our view that there will be no further policy rate hikes. 

Last year’s surge in energy and food prices on the back of unseasonal cold and wet weather is unlikely to be repeated, at least not to the same extent, though we note that recent flooding in Queensland could still push up the prices in some areas. Even so, the comparison with last year’s spikes should be benign enough to see the inflation rate decline – perhaps substantially.

Our November Monthly CPI Indicator estimate, which includes many of the quarterly services prices, is 0.5% MoM / 4.5% YoY.