RBA On Hold After Patchy Q1 Inflation Progress

Going into today’s RBA decision, it is worth recapping some of the economic developments since the last meeting on March 19. The key surprise was Q1 CPI which saw a pickup in quarterly inflation but the monthly March data also showed that disinflation has stalled on an annual basis, including the trimmed mean. Domestic price pressures eased but remain elevated and the moderation is likely to still be at a “more gradual pace”. We expect the RBA to acknowledge the higher-than-expected Q1 data in its statement today.

• Updated RBA staff forecasts will be published today. We expect a near-term upward revision to both headline and trimmed mean inflation projections, while its February Q2 2024 forecasts of 3.3 and 3.6% respectively are still achievable, they require the lowest quarterly increases seen since the pandemic.
• Q1 headline CPI rose 1.0% q/q but eased to 3.6% y/y after 0.6% q/q and 4.1% in Q4, lowest since Q4 2021. Trimmed mean rose 1.0% q/q and 4.0% y/y following 0.8% and 4.2%. Given the upside surprise, the Q2 data on July 31 will be particularly important.

Source: MNI - Market News/Refinitiv

• Key domestically-driven components moderated but remained elevated with core services at 4.3% y/y and non-tradeables 5.0% y/y.
• MI inflation expectations for April picked up to 4.6% y/y from 4.3%.
• The April Judo Bank PMI reported that higher energy, labour and material costs were adding to input inflation but it isn’t being passed on in full to customers. NAB March business data showed an easing in price/cost components but they remain above average.

Source: MNI - Market News/Refinitiv