Westpac Not As Sure As Market Re: Inflation Trajectory

Westpac note that “the Aussie BEI curve remains inverted. The clear message remains that the market believes that the current inflation impulse is still containable and will be tamed within the next year or 2.”

• “Despite the most recent quarterly CPI printing at the highest levels in this cycle, BEIs have fallen over the past month for all but the first two linker maturities as renewed central bank hawkishness pushed real and nominal yields materially higher.”
• “That shift contrasts with most other BEI marketts, which, NZ excepted, have largely moved in the opposite direction as hopes of a rapid disinflationary shift have faded in recent weeks. So, the question is whether that makes sense? Is the RBA now such an inflation hawk that it can get put in the same category as the RBNZ? We are not so sure, despite the clearly significant shift in the communication since the February Board meeting.”
• “Neither the RBA nor Westpac expect headline or underlying inflation to head back into the 2-3% band over the next 2 years. That expectation is clearly reflected in the 2025 BEI, but the 2027 BEI is argument priced-for perfection and certainly no delay in achieving the inflation goal.”