AUSTRALIA: VIEW: ANZ Believes Labour Market May Derail February Rate Cut

While November headline inflation printed a bit higher than expected at 2.3% y/y, the trimmed mean rate eased back to 3.2% y/y, where it was in September. Lower-than-expected insurance and home building costs have increased the chance of Q4 data undershooting the RBA’s trimmed mean forecasts of 0.7% q/q and 3.4% y/y when it is released on January 29, as ANZ points out. It notes that “this raises the probability of a February rate cut, although the resilience in the labour market will be a key consideration.”

• ANZ reiterates that the RBA noted the strength in the labour market in its December meeting minutes and that “the 4.2% q/q rise in Q4 job vacancies suggests momentum in labour demand may be picking up again”.
• “Annual headline inflation rose to 2.3% y/y in November. While this was in line with our expectations, it was driven by a much larger than expected jump in electricity prices (+22.4% m/m), so the remainder of the basket was weaker than we had forecast.”
• “‘All groups excluding volatile items (fuel, fruit & veg) and holiday travel’ inflation rose to 2.8% y/y from 2.4% y/y.”
• “There was an unusual monthly fall in new dwelling construction costs of 0.6% m/m due to “builders offering discounts and promotional offers”. This was the largest fall since the impacts of the Home Builder scheme. This will have a material impact on Q4 trimmed mean inflation, given that this expenditure class accounts for around 8% of the CPI basket.”
• “Insurance was much weaker than expected at 1.1% m/m.”
• “Meals out, takeaway and holiday inflation were also softer than forecast, putting downward pressure on services inflation.”