VIEW: ANZ Sees RBA On Hold Despite Sticky Domestic Inflation

ANZ points out the moderation in Q4 headline inflation to 0.8% q/q and 4.3% y/y will be driven by the tradeables component and it expects non-tradeables/services to remain strong with 6-month annualised rates of 6% and 4.5% respectively. “This suggests that further rate hikes aren’t fully off the table yet, although our base case remains that the cash rate has peaked at 4.35% and that the next move is down (in late-2024).”

• “We are forecasting non-tradables inflation of around 1.6% q/q (5.7% y/y). Some of this strength will be driven by temporary or seasonal factors, such as the indexation and additional 5% increase to the tobacco excise and summer holiday lift in domestic travel and accommodation prices. But some will likely be more persistent, particularly in the housing group, with rental vacancy rates remaining very low, housing construction costs picking up again, and the waning effect of government credits on electricity prices to put upward pressure on utilities prices in early 2024.”
• “We expect tradables to be a significant drag on headline inflation in Q4, with deflation of 0.7% q/q. But deflation, especially to this extent, is unlikely to be sustainable, so tradables may not exert the same downward pressure on the headline and underlying measures of inflation in future quarters. This story is something we may already be seeing play out in the US.”