Annual Q4 CPI To Rise Further, Watch Domestic Components

Today Q4 and December CPI inflation print. Information since the December RBA meeting signals a further 25bp rate hike at the February 7 meeting and the upcoming CPI data are likely to contribute. It is expected to show that inflation rose further, although not as far as the RBA’s 8% forecast. The measures of domestically-driven price pressures, non-tradeables and services, will be important to watch.

• Given the current high correlation between NZ and Australian CPIs, including underlying measures, the Q4 NZ data suggest that Australia’s CPI should be around expectations and Q4 may be the peak. But there is an upside risk from utilities in Australia and NZ reported strong price pressures from housing and home building, which also fits with Australian anecdotes.
• Analysts expect headline Q4 CPI to ease to +1.6% q/q from 1.8% in Q3 leaving the annual rate higher at 7.5%. The range of estimates is skewed to the upside with 1.5% q/q at the lower end and 2.2% at the upper. Most forecasts are between 1.5% and 1.7% q/q.
• The trimmed mean in Q4 is expected to rise 1.5% q/q down from 1.8% last quarter. This would bring the annual rate to 6.5% y/y from 6.1% and in line with the RBA’s November forecast. Estimates are between 1.2% and 1.8%.
• The monthly series should give us a clearer picture of where inflation was at the end of the year. December CPI inflation is forecast to rise to 7.7% y/y from 7.3% with the range of estimates 7.3% - 8.1%. The trimmed mean is expected to rise to 5.8% from 5.6% with forecasts between 5.4% and 7.3%.