Q3 CPI Should Moderate Further But Quarterly Rise Still High

Q3 and September CPI data are released on Wednesday and will be a key input into the November RBA decision. Headline is forecast to have eased to 5.3% y/y from 6% in Q2, helped by base effects, but September may have risen slightly to 5.3% (fc: 5-5.8%). The Q3 trimmed mean is also expected to be lower at 5%. RBA watcher McCrann wrote in The Australian that he believes an increase above 1.5% q/q would be needed to get the RBA to hike again.

• A consensus outcome may result in a slight overshoot of the RBA’s implied Q3 expectations but not by enough to mean a revision to Q4 2023. It only projects Q2 and Q4.
• All forecasters surveyed by Bloomberg expect annual CPI inflation eased in Q3 but almost all expect the quarterly rate to be higher than Q2 due to fuel prices. Consensus is at 1.1% q/q and 5.3% after 0.8% and 6% in Q2 with expectations between 0.7% and 1.2% q/q and 5% and 5.7% y/y. ANZ, NAB and Westpac are all at consensus but Westpac is below forecasting 0.9% and 5.1%.
• The trimmed mean should also see a stronger quarterly rise but the annual rate ease further with consensus at 1.0% q/q and 5% y/y with forecasts 0.8-1.3% and 4.7-5.3% after 0.9% and 5.9% in Q2. CBA is in line with consensus but NAB & Westpac expect 1.1% q/q and ANZ +1.2%.
• Sticky core services inflation remains a key RBA concern. Helpful base effects should mean the annual rate moderates for the first time in Q3, as Q3 2022 rose 1.8% q/q. It increased 1.2% q/q and 6.8% y/y in Q2.
• The weight for international travel and accommodation will be increased in Q3 by around 1pp to 2.84%. A full re-weighting will follow in January.