The Australian dollar and front-end yields are set up for a binary reaction. With implied hike odds already above half, a trimmed mean at or above 1.0% would push November pricing closer to fully priced and support the currency. A 0.9% or lower print could see that pricing unwind quickly. Oil is central to the headline story: the fuel spike reflects the global energy shock tied to the Iran conflict, so further gains in crude would keep headline inflation elevated into year-end. The services component matters most for the RBA, since broadening price pressure would undercut the argument that this is purely an imported energy shock. The release coincides with RBA officials appearing before Senate Estimates, adding to the event risk.
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Earlier:
RBA is talking more but promising nothing: Westpac’s Ellis says read the data calls
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Australia’s core inflation is set to overshoot the RBA’s own forecast for another quarter, and with the banks split down the middle, Wednesday’s print may decide whether the Board hikes on Melbourne Cup Day.
Summary:
Australia’s September quarter CPI is due at 00:30 GMT Wednesday (20:30 US Eastern Tuesday)
The big four banks see quarterly trimmed mean inflation at 0.9% to 1.0%, above the RBA’s 0.8% forecast, with headline at 1.2% to 1.3% q/q and 3.9% y/y
CBA expects fuel prices up about 10% in September, taking annual fuel inflation to around 24%, and market services inflation rising to 4.3%
The cash rate is 4.60% after four hikes this year; the RBA decides on November 3
ANZ and Westpac expect a November hike, while CBA and NAB expect a hold, with CBA flagging a growing risk of another move
Implied hike odds jumped above 50% after Deputy Governor Hauser said the inflation outlook was materially worse than projected
Australia’s September quarter inflation data, due at 00:30 GMT on Wednesday (20:30 US Eastern on Tuesday), is expected to show underlying price pressure running well ahead of the Reserve Bank of Australia’s own forecast, sharpening the debate over whether the central bank hikes again on November 3. The big four banks broadly expect trimmed mean inflation, the RBA’s preferred core measure, to rise about 1.0% over the quarter, compared with the RBA’s August projection of 0.8%.
Big four forecasts, September quarter CPI (q/q / y/y)
The forecasts are tightly clustered. Westpac is the only bank below 1.0% on the quarterly trimmed mean, while NAB is slightly lower than its peers on headline inflation.
Fuel is the main driver of the headline number. CBA expects fuel prices to rise about 10% in September after an increase of nearly 15% in August, taking annual fuel inflation to roughly 24% as the global energy shock feeds through to the pump. On the monthly measure, CBA sees headline annual inflation climbing to 4.2% in September from 4.0% in August, with the annual trimmed mean steady at 3.6%. The more important signal for policymakers may be services, where CBA expects annual market services inflation to edge up to 4.3% from 4.1%, a sign that price pressure is not confined to energy.
The RBA has already raised the cash rate four times this year, most recently by 25 basis points in September, taking it to 4.60%. Market expectations for a further move rose sharply after Deputy Governor Andrew Hauser said the inflation outlook was materially worse than the RBA had projected in August, with implied odds of a November hike jumping from about a quarter to more than half.
The banks are split on what the RBA will do. ANZ and Westpac have a November hike as their base case, and ANZ says a 1.0% trimmed mean print would reinforce that view. CBA and NAB expect a hold, though CBA describes the decision as finely balanced and says the risk of another hike is growing, given softer activity, a weaker labour market and subdued consumption on the other side of the ledger.
A trimmed mean at or above 1.0% would strengthen the case for back-to-back hikes, while a reading closer to the RBA’s 0.8% would give the Board room to pause.
This article was written by Eamonn Sheridan at investinglive.com.
