ANZ: Underlying Measures Key In Q4 CPI

ANZ note that “trimmed mean, non-tradables and services inflation are the key measures in the Q4 CPI release. They better reflect underlying and domestically driven inflationary pressures and are more relevant for the RBA’s policy settings.”

• “We have lifted our Q4 trimmed mean CPI inflation forecast to 1.7% Q/Q (previous forecast: 1.6% Q/Q). This would see the annual rate reach 6.7%, exceeding the RBA’s forecast of 6.5% Y/Y.”
• “We forecast non-tradables and services inflation will both print at 1.9% Q/Q, annualising at almost 8%. This would be the largest quarterly increase for services inflation since the mid-1990s, aside from temporary policy influences around the GST’s introduction and during the pandemic.”
• “Accordingly, we see the risks to our terminal cash rate pick of 3.85% as weighted to the upside.”
• “We maintain our headline CPI inflation forecast at 1.8% Q/Q. This would see the annual rate lift to 7.7%, below the RBA’s 8.0% Y/Y pick.”
• “But we think it would take a downside surprise in trimmed mean CPI relative to the RBA’s forecast for it to consider a pause in cash rate hikes in the next few months.”
• “The monthly CPI indicator is forecast to have risen 7.7% Y/Y in December.”