MNI DATA ANALYSIS: Australia CPI Shows Lack of Infl Pressures

By Sophia Rodrigues

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

expected in the fourth quarter, staying below the Reserve Bank of Australia's

target band for the third straight quarter but more importantly showing little

signs of inflationary pressures in the economy.

     Underlying CPI, that has a more direct relevance to RBA's monetary policy,

accelerated slightly on a q/q basis compared with Q3 but fell short of

expectations, though the y/y pace met MNI median forecast. The outcome of 1.9%

y/y was slightly higher than 1.85% in Q3 but it was nine quarters in a row that

underlying inflation has remained below the RBA's 2% to 3% target band.

     Headline CPI has been within the RBA's target band just once in the last 13

quarters.

     Overall, the data is likely to be within the RBA's expectation and makes no

case for raising bets for cash rate hike in the near term.

     Data published by the Australian Bureau of Statistics Wednesday showed

tradable inflation accelerated in Q4 after four quarters of fall, but this was

largely due to rise in fuel and fruits which are not expected to sustain in the

following quarters. Non-tradable inflation rose at a slower pace, rising 0.8%

q/q compared with +1.0% in Q3 and this was mainly due to rise in tobacco and

domestic holiday and accommodation.

     None of these point to inflation pressures building in the economy. In

fact, the 1.9% y/y rise in headline CPI may be a significant dampener as far as

wage growth in the economy is concerned.

     A surprise in the data was a 9.3% rise in fruit prices when most economists

expected vegetable prices to be the main contributor. Vegetable prices rose just

1.7% q/q.

     Housing CPI rose at a slower pace, up just 0.3% q/q compared with 1.9% q/q,

though in y/y terms it accelerated to +3.4% -- the highest rate since Q2 of

2014.

     The most significant price falls came from international holiday travel and

accommodation (-1.7%), audio visual and computing equipment (-3.5%), and

telecommunication equipment and services (-1.4%), all pointing to subdued

imported inflation. The downside risk to this could increase in the current

quarter given the recent rise in the Australian dollar.

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