January 23, 2025 00:24 GMT
AUSTRALIA: NZ Q4 CPIs Signal Lower Australian Core But Upside Risks To Services
AUSTRALIA
Given the very high correlations between NZ and Australian CPIs and their major components, there is information to be gained about the upcoming Q4 Australian data on January 29 from NZ’s Q4 data. Given government electricity subsidies, it is difficult to compare the headline measures. But the NZ data suggest there will be further moderation in Australia’s trimmed mean inflation but possible upside risks to services, which is a particular focus of the RBA’s.
Australia vs NZ underlying CPI y/y%
Source: MNI - Market News/Refinitiv
- The RBNZ’s factor sector model of core inflation showed a moderation in Q4 to 3.1% y/y from 3.3%. It has a 90% correlation with Australia’s trimmed mean CPI, which was 3.5% in Q3.
- Services inflation in the two economies also has a 90% correlation. This is where the upside risk may lie with NZ services CPI up 4.8% y/y in Q4 from 4.3%. Also, the RBNZ’s core non-tradeables only fell 0.1pp to a still elevated 4.6% y/y and has proven sticky as it is only 1pp below its Q2 2023 peak. Insurance premiums have been a problem in both Australian & NZ.
- A moderation in Australia’s core inflation will be welcomed but given the services CPI has picked up 0.3pp since its Q1 2024 trough of 4.3% y/y and Q3 market services was steady at 4.1% y/y, another sticky read in Q4 would likely concern the RBA. Other OECD countries are finding it difficult to get services inflation significantly below 4%.
- Australia’s goods inflation has been running above NZ’s. In Q3 it was 1.4% y/y compared with 0.7% y/y. NZ’s moderated 0.1pp and core tradeables 0.2pp in Q4 and so there could be further easing in Australia too.
Australia vs NZ services CPI y/y%
Source: MNI - Market News/Refinitiv
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