Q1 Inflation Forecast To Ease Substantially, Watch Services

Q1 CPI prints on Wednesday and will be watched closely as it feeds into the RBA’s updated outlook published on May 7 and thus also its decision making. Bloomberg consensus expects it to ease to 3.5% y/y from 4.1% but for the quarterly rise to pick up. Trimmed mean is forecast to drop to 3.8% from 4.2%, helped by favourable base effects. Given the upward surprise to NZ’s domestic inflation in Q1, there is a risk the services component remains “sticky”, which the RBA is monitoring closely (see MNI Strong NZ Domestic Inflation May Also Show In Australia’s Q1 Data).

• Q1 headline CPI is forecast to rise 0.8% q/q after 0.6% in Q4. It is worth noting that Q1 2023 posted a 1.4% increase. Forecasts range from 0.7 to 1.0% q/q and 3.2 to 3.7% y/y with ANZ, NAB and Westpac all at consensus and CBA slightly lower at 0.7%/3.4%.
• Trimmed mean is expected also to rise by 0.8% q/q in line with Q4. It rose 1.2% q/q in Q1 2023. Projections are in a narrow range of 0.7-0.9% and 3.7-3.9% with CBA and Westpac forecasting 0.8% but ANZ and NAB 0.9%.
• The services CPI will be important as it is domestically driven and elevated. Also the RBA is concerned re its persistence as seen overseas. It rose 4.6% y/y in Q4 and core 4.5% but while base effects should help the headline ease in Q1, the core needs a result below 0.9% q/q for a moderation in the annual rate. Non-tradeables will be another component to watch.
• March monthly CPI is forecast to be at 3.4% y/y for the fourth consecutive month with ANZ, CBA & NAB all at consensus but Westpac below at 3.2%. Forecasts range between 3.2% and 3.6%.