VIEW: CBA Sees Risks To Its September Easing Forecast

Q1 and March CPI printed higher than consensus and the RBA expected. CBA notes that as a result the start of the monetary easing cycle could be delayed from its September forecast. Annual inflation continued to moderate but a “slower return of inflation to target has implications for the RBA’s policy decisions”.

• “Heading into the Q1 24 CPI data today the balance of risks around our September RBA rate cut call were evenly balanced. Post the stronger‑than‑expected CPI print, higher than both our and the RBA’s implied profile, as well as the gradual loosening in the labour market thus far, suggests the risk now sits with a later start date to the first rate cut.”
• “The next RBA Board meeting after September is November, i.e. there is no October meeting. The RBA would have the added benefit at that November meeting of seeing an additional quarterly CPI print (released late October) before cutting interest rates.”
• “The upshot is that the key drivers of inflationary pressures in Australia are centred around parts of the CPI basket where consumer demand is less able to respond to higher prices. Eight of the top 10 contributors to the quarterly increase in prices were non‑discretionary items: rents, secondary education, health services and pharmaceuticals, new dwelling construction costs, vegetables, and insurance and other financial services. The two discretionary items rounding the top 10 were tertiary education and domestic travel.”