Q4 Australian CPI prints tomorrow. The headline is expected to ease to 1.6% q/q from 1.8% (range of 1.5% to 2.2%). The trimmed mean is forecast at 1.5% q/q, prior 1.8% (range of 1.2% to 1.8%). Y/Y measures are expected to rise, headline to 7.6%, from 7.3% prior, trimmed mean 6.5%, versus 6.1% previously. Y/Y measures for Dec monthly CPI are also expected to rise (headline to 7.7% from 7.3%, trimmed mean 5.8% from 5.6%).

• Rising utility costs in Q4 are expected to push headline pressures up, although the general consensus is for easing momentum as we progress through 2023.
• Upside surprises, in contrast to NZ, haven't been as strong over the past 18 months, see the first chart below. There is more modest deviation between actual and expected inflation. See this link for the earlier NZ piece ahead of tomorrow's print.

Fig 1: AU Headline Inflation Versus Expectations

Source: MNI - Market News/Bloomberg

• More modest upside surprises may help explain the more benign AUD reaction post CPI outcomes relative to NZD. The second chart below shows that AUD/USD has typically dropped post CPI prints over the last 2 years.
• In the two weeks after the CPI print the AUD/USD has fallen, on average, by 0.63%, between 2021 and 2022. Indeed, it has been higher 2 weeks post the CPI print on 2 out of 8 occasions, versus 5 out of 8 for NZD.
• The best performance was post the Q2 2022 CPI data in July 2022, AUD/USD rose 1.38% in the two weeks after the print. The worst performance was in April 2022, like NZD.

Fig 2: AUD/USD Reaction 2weeks Before & 2weeks After CPI Prints (2021-2022)

Source: MNI - Market News/Bloomberg