VIEW: Westpac: Q1 CPI Is Unlikely To Shift Market Pricing

Westpac note that "while Wednesday's CPI data will be keenly watched, and a surprise will still have the power to influence yields on the day, we think that the market has already made a sufficient concession to inflation expectations to accurately reflect current conditions and future possibilities. Clearly, despite better than expected data outcomes in recent months, there remains a massive amount of excess capacity in the economy and the RBA has made it clear that they will look through upcoming spikes in the headline CPI measure. Even so, market risk rewards remain skewed toward a larger response to an upside surprise. We would not expect OIS markets to significantly revise the forward cash rate profile, however, confidence in a start to rate hikes in late 2022 would be higher on an upside surprise, while a lower, or market median, outcome would have very little power to shift forward expectations."