Australia: Lower inflation justifies unchanged rates by the RBA – UOB

Economist at UOB Group Lee Sue Ann assesses the latest inflation figures in Australia and the prospects for a potential pause by the RBA of its hiking cycle.

Key Takeaways

“Australia’s headline CPI growth came in at 1.4% q/q for 1Q23, a tad higher than expectations of 1.3% q/q, but lower than the reading of 1.9% q/q in 4Q22. Compared to the same period a year ago, CPI advanced 7.0% y/y, also lower than the 7.8% y/y print in 4Q22, though still a tad higher than expectations of 6.9% y/y.”

“Underlying inflation also eased. Annual trimmed mean inflation was 6.6%, down from 6.9% in 4Q22.The trimmed mean measure rose at a slower pace of 1.2% q/q, compared to 1.7% q/q in 4Q22. The strength of the underlying inflation was also evident in the Reserve Bank of Australia (RBA)’s weighted median CPI, which was up 1.2% q/q, but down from the previous reading of 1.6% q/q.”

“Following today’s inflation figures, the RBA is likely to remain on the sidelines at the upcoming monetary policy meeting on 2 May. As such, we continue to see the current 3.60% cash rate as the likely peak. Focus will nonetheless continue to be on incoming economic data, including 1Q23 wage price index (17 May), followed by Apr employment (18 May).”