MNI DATA ANALYSIS: Australia CPI Confirms RBA Worry Abt Retail

--Underlying CPI Y/Y Rises Close to RBA Band; Accelerates Most in 9 Qtrs

By Sophia Rodrigues

     SYDNEY (MNI) - Australia's consumer price index inflation rose less than

expected in the first quarter, marking the sixth consecutive quarter where the

outcome fell short of expectations, and shows there is yet no sign of inflation

pressures building in the economy.

     The data confirms the Reserve Bank of Australia's worry of continued strong

competition in the retail sector being the main source of deflationary

pressures, and is a reason why the central bank expects progress in inflation

towards the mid-point of the target band to be gradual.

     The data reduces possibility of a hike in the RBA cash rate this year but

still keeps intact the possibility of a hike early next year.

     Headline CPI y/y met the MNI median forecast but marked the thirteenth

quarter in the last fourteen where the outcome has been below the RBA's 2% to 3%

target band.

     Data published by the Australian Bureau of Statistics Tuesday showed

headline CPI rose 0.4% q/q, falling short of MNI median forecast for +0.5%.

Headline CPI y/y rose 1.9%, in line with the forecast.

     The data was, however, in line with the RBA projection and is unlikely to

lead to any downward revision in the inflation forecasts next month in the

quarterly Statement on Monetary Policy. Any risk, therefore, may be slightly to

the upside.

     A bright spot in the data was the acceleration in underlying CPI -- roughly

taken as the average of trimmed mean and weighted median measures of inflation

-- to 1.95% y/y and very close to the RBA's target band. This is the biggest

rise in the last nine quarters where underlying CPI has remained below the RBA

band.

     In the latest quarter, the rise in inflation came from education and the

health group which was in line with expectation. Food and non-alcoholic

beverages rose 0.5% q/q and the housing group accelerated 0.7% q/q but was

mainly due to rise in utilities. This was partly offset by a 2.0% q/q fall in

clothing and footwear, a 0.4% q/q fall in furnishings, household equipment and

services, and a 0.7% fall in recreation and culture.

     The fall in clothing and footwear group, and the furnishings and household

equipment group reflect the downward pressure in the retail sector. Inflation in

clothing and footwear has fallen in six of the last seven quarters, with the

2.0% q/q fall in Q1 the biggest decline during these quarters.

     In case of furnishings and household equipment, the pace of inflation

decline slowed to -0.4% q/q in Q1 from -0.8%.

     Inflation in the communication arena has declined for the last 15 quarters,

though the 0.4% q/q fall in Q1 marked a slower fall from -1.3% and -1.4% in the

two quarters prior.

     Inflation excluding the housing group was up 0.6% q/q and +1.6% y/y. 

     Non-tradable inflation rose 3.1% y/y in Q1, the same as Q4 and marks the

third straight quarter of a rise above 3.0%. This is slightly positive and if

downward pressure from tradable inflation dissipates in coming quarters,

headline CPI could get within the RBA's target band and rise towards 2.5%.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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