Australia CPI Preview: Forecasts from seven major banks, rebound in inflation to continue

We expect headline CPI to print at 1.1% QoQ and trimmed mean inflation at 1.2% QoQ in Q3. This would see the annual measures ease to 5.3% YoY and 5.1% YoY respectively.  The monthly CPI indicator is forecast to rise 5.4% YoY in September, up from July’s 4.9% YoY low. This outcome, particularly for trimmed mean, would cause the RBA some discomfort given its ‘low tolerance for a slower return of inflation to target’ than current forecasts.

The good news is that we think there is a chance that the headline inflation rate could manage not to rise again in September. The bad news is that we think it may stay at 5.2% YoY, unchanged after it rose in August.

We hold to our forecast for a 1.1% rise in the September quarter CPI which will see the annual pace ease back from 6.0% YoY to 5.3% YoY. For core inflation, our Trimmed Mean estimate is also 1.1% QoQ which will see the annual pace ease to 5.0% YoY from 5.9% YoY. We will also see a moderation in the six-month annualised pace from 4.3% YoY in June to 4.0% YoY in September. The recent peak was 7.4% YoY in December 2022.  We forecast a 0.2% rise in the September Monthly CPI Indicator which will see the annual pace hold flat at 5.2% YoY.

We expect Sep annual CPI to edge higher (5.3%) from a rise in fuel prices and an increase in tobacco tax. Factoring in our Sep f/c and the Jul/Aug prints, CPI trimmed mean probably showed price pressures picking up 1% in Q3 on a QoQ basis, slightly higher than the RBA's forecast of 0.9%. Acceleration in housing, utilities and transport costs are likely the culprits for Q3 inflation.

We expect monthly headline inflation to have risen further, from 5.2% in August to 5.3% in September. Australia’s 3Q headline and core CPI readings are expected to have remained strong in QoQ terms, while the yoy rates probably fell notably, thanks only to base effects.

Headline inflation is set to rise by 0.9% QoQ in Q3, implying a yearly reading of 5.1%, down from 6% the quarter prior. Underlying inflation will likely re-accelerate from 0.9% in Q2 to 1.2% QoQ in Q3, implying a yearly reading of 5.1%. This consists of a 1.3% increase in trimmed mean and a 1.1% increase in the weighted mean measures of the CPI. A variety of subsidies for households, along with falling airfare prices, are more than offset by rising energy costs including electricity and automotive fuel. But underpinning the acceleration in underlying inflation is sticky core-services. This will likely concern the RBA more than energy costs, and now raises a firm prospect of a November hike. We keep the view unchanged for a final hike in December, but will re-adjust, if needed, post CPI.

We expect the Q3 CPI to show a quarterly print of 1.1% for both headline and underlying inflation, seeing the year-ended rates fall to 5.2% and 5.0% respectively.