VIEW: Westpac Sees Risks To Q1 CPI Forecast As “Balanced”

February CPI inflation was steady at 3.4% y/y, lower than Westpac expected but it is wary to assume there are downside risks to its Q1 forecast as “the quarterly CPI is not a simple average of the Monthly CPI” and underlying components were not as sanguine. The trimmed mean rose to 3.9% y/y from 3.8% and services to 4.2% from 3.7%. Westpac sees the risks to its current Q1 CPI forecast of 0.7% q/q as “balanced”.

• “Overall, quarterly surveyed services came in stronger than expected exemplified by the 5.1%yr increase in education (forecast was 4.1%yr). This presents an upside risk to our current quarterly CPI forecast.”
• “The most significant difference to our forecast was electricity, and while this series is a monthly estimate, we have now seen a run of softer than expected electricity prices due to the ongoing impact of government rebates. February included a second round of energy rebates in Victoria. This does have a meaningful impact on our quarterly electricity forecast and presents a downside risk to our Q1 CPI forecast.”