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Monthly CPIs Suggest That Australia Won’t Follow NZ’s Moderation

AUSTRALIA
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There is a high correlation between Australian and NZ CPI inflation over both 3- and 5-year periods. With Australia’s Q2 CPI not printing until July 31, there is some information in the NZ data – that Australia should see a moderation in quarterly non-tradeables growth. However, NZ’s Q2 headline printed lower than expected and moderated to 3.3% y/y from 4%, whereas Australia’s monthly CPI data for April/May are pointing to a pickup in annual headline and underlying inflation.

  • The RBA forecast in May that Q2 CPI would pickup to 3.8% from 3.6% in Q1. While Governor Bullock has warned about extrapolating from the monthly averages, they have been within 0.1pp in both Q1 and Q4. The April/May headline average is in line with the RBA at 3.8% y/y, which would require a 1% q/q rise, the same as Q1. However, the annual correlation with NZ is 90% signaling that there may be some downside risk.

Australia vs NZ CPI y/y%

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There is a high correlation between Australian and NZ CPI inflation over both 3- and 5-year periods. With Australia’s Q2 CPI not printing until July 31, there is some information in the NZ data – that Australia should see a moderation in quarterly non-tradeables growth. However, NZ’s Q2 headline printed lower than expected and moderated to 3.3% y/y from 4%, whereas Australia’s monthly CPI data for April/May are pointing to a pickup in annual headline and underlying inflation.

  • The RBA forecast in May that Q2 CPI would pickup to 3.8% from 3.6% in Q1. While Governor Bullock has warned about extrapolating from the monthly averages, they have been within 0.1pp in both Q1 and Q4. The April/May headline average is in line with the RBA at 3.8% y/y, which would require a 1% q/q rise, the same as Q1. However, the annual correlation with NZ is 90% signaling that there may be some downside risk.

Australia vs NZ CPI y/y%

Keep reading...Show less