From Westpac comes the following Q2 CPI preview (released today):
- Our Q2 headline CPI forecast is 0.6%qtr/3.2%yr. Core inflation, as measured by the average of the trimmed mean and weighted median, is forecast to rise by 0.7%qtr/2.8%yr.
- We estimate that the 6 month annualised pace of core inflation eased back to 2.5%yr in Q2 from 2.8%yr in Q1 and 3.0%yr in 2013Q4. The pulse of core inflation has eased back from the top of the RBA’s 2-3% target band and the lack of wage inflation, well anchored low inflation expectations and a robust AUD suggests that the most likely outcome is for this moderation to continue.
- June is seasonally a softer quarter (pharmaceuticals, holiday travel, rates & taxes and education lower, offset to a degree by the annual health insurance premium hike) with the ABS estimating a historical net contribution of about –0.14ppts. This seasonality is helping to hold down the pace of inflation despite a robust contribution from food, housing and health costs. The seasonally adjusted CPI is forecast to rise 0.8%qtr.
- Housing, with a weight of 22.3% in the CPI, is key to understanding headline, core and non-traded inflation. We expect a bounce in house purchase prices. Rents, however, are holding their pace at 0.8% in Q2 from 0.7% in Q1. That mix lifts housing 0.7%qtr for a 0.16ppt contribution. Ex-housing, the CPI is forecast to rise 0.5%qtr. Utilities inflation has moderated and is likely to ease further over the coming year with the removal of the carbon tax.
- The most direct impact from the stronger AUD (up 4.1%qtr against the USD, 3.7% in TWI terms) in Q1 is seen in lower petrol prices. While very volatile week to week, surveys suggest the quarterly average pump price fell 1.4%qtr.
- Wholesale fruit prices rose in the quarter (7.0%) offset somewhat by a fall in vegetable prices (–3.0%) but meat prices have been rising helping to boost food inflation.
- Alcohol and tobacco are expected to make a steady contribution in Q2, but less so than following the tobacco excise boost in Q1.
- Clothing & footwear has a seasonal boost in Q1 as prices are reset post the New Year sales and prior to June 30 sales. But with a more robust AUD, and disappointing retail sales reports, we have gone for a below seasonal par rise of 1.8%.
- Domestic holidays have a seasonal correction in Q2, confirmed by airfares data, and international holidays also tend to be softer in this quarter.
- Traded goods are forecast to rise 0.5%qtr/2.9%yr while non-traded goods are forecast to rise 0.7%qtr/3.4%yr.
Full report here.