VIEW: Westpac Pushes Out First Rate Cut

Q1 CPI rose 1.0% q/q and 3.6% y/y and the trimmed mean rose 1.0% and 4.0%, above Westpac’s forecast of +0.8% q/q for both. This higher-than-expected outcome has prompted it to push out its first RBA rate cut forecast to November from September, as inflation “has a way to go for the RBA to be confident of returning to the 2–3% target range on the desired timetable”.

• “Based on its view for the year-ended to June quarter (3.3% year-ended for headline and 3.6% for trimmed mean), we assess today’s release as implying a somewhat slower trajectory of disinflation than the RBA would like. The RBA might also be sensitive to the lack of progress in disinflation through the March quarter evidenced in the monthly indicator.”
• “The biggest surprises were not in areas that would suggest that inflation is being driven by strong demand.”
• “We assess that the RBA will keep rates steady at its upcoming meeting. It will probably continue to be cautious about services inflation and domestic pressures broadly for a few months yet. We therefore do not expect any change to the messaging about not ruling anything in or out for another few months.”
• “Given the slower progress on disinflation this quarter and the lower starting point for labour market slack, we now expect the first rate cut to occur after the November meeting, rather than September as previously expected. As always, this view is data-dependent and there are risks on both sides of a November timing.”