CPI preview

CPI preview for later today. Westpac with the note:

•Westpac’s forecast for the Q2 CPI is 0.9% which, with base effects from the Covid hit last year, will lift the annual rate to 4.0%yr from 1.1%.
•The trimmed mean forecast is 0.5%qtr lifting the annual rate lift from 1.1%yr to 1.6%yr. The six-month annualised pace of the trimmed mean can be described as flat at 1.7%yr from 1.6%yr in Q1. Core inflation is yet to see any significant momentum lifting it into the RBA’s target band.
•Demand for dwellings continues to surge due to low interest rates and, perhaps more importantly for the CPI, government HomeBuilder grants. The use of these grants are seen as subsidy and thus lowers the price measured in the CPI. Ongoing use of these grants in Q2 will mute the measured rise in dwelling prices in the CPI.
•We are seeing a temporary boost to the CPI from a surge in fresh fruit & vegetable prices while the surge in crude oil prices, and a weaker AUD, has boosted auto fuel prices.
•There was a seasonal lift in health costs associated with the annual health premium reset.
•Offsetting the gains were falling prices for both domestic and international holidays and travel due to government subsidies for airfares and increasing competition on more limited routes.
•Inflation remains well contained but the key going forward will be how dwelling prices respond to the loss of support from the ending of the HomeBuilder grants.

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