ANZ on the Q4 CPI print: - Q4 core........>

AUSTRALIA: ANZ on the Q4 CPI print:

- Q4 core inflation came in in line with expectations (market's and the RBA's),

while headline inflation was slightly stronger than market expectations. The ANZ

Diffusion Index was up slightly, indicating that a greater share of the items in

the CPI basket are growing at annualised rates greater than 2.5%. Encouragingly,

domestic markets service inflation improved to 2.1% y/y, suggesting that higher

unit labour costs are flowing through to consumer prices. This is important for

the inflation outlook, given that the weakness in house prices, rents and

secular weakness in retail prices will impede an improvement in inflation. While

the core result was in line with the RBA's forecast, a lift in core inflation is

required in the first half of 2019 to reach the Bank's June 2019 y/y forecast of

2%. This seems a tough ask in light of the loss of economic momentum in the

second half of 2018.