REPEAT: MNI PREVIEW: Australia Q3 CPI Seen Up On Electricity

Repeats Story Initially Transmitted at 05:39 GMT Oct 24/01:39 EST Oct 24

--Utilities Prices Key Risk for Headline CPI; Risks Balanced

--Important to Watch CPI Ex-Housing; Westpac Sees +0.1% q/q

By Sophia Rodrigues

     SYDNEY (MNI) - Australia's third quarter consumer price index is expected

to show an acceleration in headline inflation, largely due to increases in

electricity and gas prices, while underlying inflation is expected to rise to

the bottom of the Reserve Bank's target band for the first time since 2015.

     Economists expect Q3 headline CPI to rise 0.8% q/q, taking y/y CPI to

+2.0%. The median forecast for underlying inflation, which is roughly the

average of the trimmed mean and weighted median measures of inflation, is for a

rise of 0.5% q/q and +2.0% y/y.

     The main source of the boost to headline CPI is a sharp increase in

electricity and gas prices, which economists estimate to be in the range of 8%

to 15%. CPI also gets a boost in Q3 due to seasonal factors like an increase in

international airfares, tobacco prices and utilities prices. The offset is

mainly from falls in the prices of fruits and vegetables, telecommunications,

and fuel.

     Given the variation in estimates of utilities prices, the risk for outcome

on headline CPI are balanced. But a higher outcome may not necessarily mean

inflation pressures could accelerate in the future given economists aren't sure

how much energy price rises will result in a second-round inflation effect.

     A lower-than-expected outcome would, however, raise worries about subdued

inflationary pressures in the economy and together with expectations of downside

risk on inflation in future quarters due to a re-weighting of the CPI basket,

they point to monetary policy being on hold for longer.

     An outcome in line with expectations would comfort the RBA because it would

be in line with its forecasts.

     Westpac senior economist Justin Smirk expects headline CPI to rise just

0.7% q/q and 1.9% y/y. Smirk also has a below-consensus forecast for underlying

inflation at 0.3% q/q and 1.8% y/y.

     Significantly, his forecast for a 0.7% rise in Q3 inflation incorporates an

electricity price rise of 13% and a gas bills increase of 12%, which is higher

than many other economists. Excluding gas and electricity, Smirk forecast a

0.27% rise in headline CPI.

     "This is a soft update, as outside of electricity, gas and dwelling

purchases it is hard to find any signs of broader inflationary pressure with

many consumer goods captive to a competitive deflationary cycle. Ex-housing

(which includes energy bills) the CPI is forecast to rise 0.1%," he wrote in a

note.

     UBS economist George Tharenou has a slightly different view on utilities

prices. He revised down his initial CPI forecast of +0.8% q/q to +0.7% after

realizing the energy price shock was not as bad as feared, with electricity

prices rising only 9% and gas up 4%. Other surprises for him included drops in

fuel prices, and in fruit and vegetable prices. 

     Commonwealth Bank senior economist Gareth Aird is forecasting a 2.1% y/y

rise in headline CPI and the same outcome for underlying CPI.

     Such an outcome would push CPI within the RBA's target band, he said,

adding that alone "does not mean a rate hike is around the corner."

     But a high-side CPI surprise would mean a risk that their late 2018 rate

hike call would have to be brought forward, he said, while "a downside surprise

could see any move slip into 2019."

     The Australian Bureau of Statistics (ABS) will release the data at 11:30

local time Wednesday (1230 GMT).

     Below are individual forecasts for third quarter CPI data. 

                     All        All

                  Groups     Groups    Trimmed       Underlying       Underlying

                     CPI        CPI       Mean       Inflation*       Inflation*

--------------------------------------------------------------------------------

                     Q/Q        Y/Y        Q/Q              Q/Q              Y/Y

                % Change   % Change   % Change         % Change         % Change

                      Q3         Q3         Q3               Q3               Q3

Median              +0.8       +2.0       +0.5             +0.5             +2.0

High                +0.9       +2.1       +0.6             +0.6             +2.1

Low                 +0.6       +1.8      +0.27            +0.29             +1.8

Mean                +0.8       +2.0       +0.5             +0.5             +2.0

No of

Respondents           17         17          9               15               18

Previous

Report              +0.2       +1.9       +0.5             +0.5             +1.8

NAB                 +0.8       +2.0       +0.5             +0.4            +1.95

Westpac            +0.72       +1.9      +0.27            +0.32             +1.8

ANZ                 +0.8       +2.0        N/A             +0.4             +1.9

CBA                 +0.9       +2.1       +0.5             +0.6             +2.1

Citigroup           +0.6       +1.9        N/A             +0.5             +2.0

UBS                 +0.7       +1.9       +0.6             +0.5             +1.9

Deutsche Bank       +0.8       +2.0       +0.5             +0.5             +2.0

TD Securities       +0.8        N/A       +0.5             +0.5             +2.0

RBC Capital         +0.9       +2.1        N/A             +0.5             +2.0

BA-ML               +0.9       +2.1       +0.4             +0.4             +1.9

St George           +0.8       +2.0        N/A             +0.5             +2.0

HSBC                +0.9       +2.1       +0.6             +0.6             +2.1

Moody's             +0.9       +2.1        N/A              N/A             +1.9

StanChart           +0.7       +1.8        N/A              N/A             +1.8

JP Morgan           +0.7       +1.9        N/A             +0.5             +2.0

Nomura                         +2.1        N/A              N/A             +2.0

AMP Capital         +0.8       +2.0        N/A             +0.5             +2.0

Macquarie           +0.8       +2.0       +0.5             +0.5             +2.0

     * Y/Y Underlying inflation is assumed as the average of trimmed mean and

weighted median measures of inflation.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

[TOPICS: MTABLE]