VIEW: CBA Doesn’t Expect Inflation Moderation Until Q3 2024

April CPI came in just above CBA’s 3.5% estimate at 3.6%. It noted that it is running “at the same pace as the benchmark Q1 2024 quarterly CPI”. It doesn’t think there are any “near-term implications for monetary policy” as the RBA has said it will look through “short-term variation”.

• “Clothing & footwear prices also rose very solidly, more than offsetting the discounting activity at the beginning of the year. This is one area to watch, as it could be suggesting some pockets of consumer strength such as from older Australians.”
• “Prices that are measured in the first month of the quarter are overweight on goods. The May CPI indicator will give a read on how services inflation is tracking. We don’t anticipate the annual rate to dip given unfavourable base effects.”
• “Favourable base effects helped the decline in inflation from its late 2022 peaks. However, inflation outcomes over Q2 24 won’t benefit from base effects, given inflation in Q2 23 was 0.8%/qtr. The next leg down in inflation will occur in Q3 24 for a couple of reasons. Q3 23 quarterly inflation was driven by the Fair Work Commission’s 5.75% award wage decision. The FWC is due to hand down its decision for this year next Monday (3/6 at 10.30am). We anticipate a smaller award wage increase.”
• “The other reason we expect a Q3 24 drop in inflation is because of Federal and state government rebates. An expected 20% fall in post-rebate electricity prices could see a run of monthly CPI prints at or below 3.0%/yr from July.”