Westpac Sees Downside Risks To Its CPI Forecast

Westpac expects Q4 CPI to rise 0.8% q/q and 4.3% y/y, in line with Bloomberg consensus, and the trimmed mean 0.9%/4.4%. It sees the risks around the projection skewed to the downside. With its forecast below the RBA’s November forecast, Westpac expects the central bank to be on hold in February with the first rate cut in September.

• “With two months worth of Monthly CPI Indicator data, we have greater confidence in our near-cast of the CPI. However, there are some significant components that are only surveyed in the third month of each quarter including childcare, health, motor vehicles, newspaper books & stationary, veterinary & other pet services and other financial services. As such, there is still some scope for a surprise on the day.”
• “There is a small downside risk to our quarterly CPI forecast. As noted in our November Monthly Indicator review, while dwelling and rents remain a concern, the increase in household services in November was less than expected. Also, many household goods are not measured in November, and thus missed the significant Black Friday/Cyber Monday sales.”
• “For the December Monthly CPI Indicator, Westpac is forecasting a 3.0%yr increase (the ABS focuses on through the year estimates for the Monthly Indicator) which would be a 0.3% increase in the month.”