UBS: Aussie CPI to pop and drop

UBS with the note:

Q2 CPI forecast revised up: to lift 0.9% q/q & 4.0% y/y, highest since the GFC
We sharply revise up our Q2 CPI forecast. Headline is now expected to lift by 0.9% q/q, above our long-held preliminary forecast of 0.6%, and further above the available consensus of ~0.3% (albeit ‘stale’ & likely higher now), and the RBA’s implied ~½%, even after Governor Lowe’s raised their forecast from the May SOMP which had only ~0.2%. This would differ from Q1 which was surprisingly well below consensus, but ~in-line with the RBA’s forecast. We also expect the y/y to spike to 4.0% (mkt: ~3.4%, RBA ~3½%) – as the record fall in Q2-20 drops out – the fastest pace since leading into the GFC peaked at 5.0% in Q3-08. This would be up very sharply from 1.1% in Q1.

Detailed item level forecasts show a lot of uncertain measurement impacts
Our detailed item-level CPI forecast has a lot of uncertain ‘measurement’ impacts. 1) While industry data suggests a sharp rise in advertised rents, the CPI measure of the stock of rents (7% share of the CPI) – is ~flat, & likely to remain slow for now (UBSe 0.4%). 2) Similarly, while the HomeBuilder subsidy ended in Q1, the CPI price impact is when construction commences, so new dwelling purchase of owner occupiers (9% share) will likely remain moderate (+2%, albeit uncertain), despite faster ‘underlying’ price rises. 3) Several Government/administered prices, particularly utilities (5% share), have ongoing freezes. That said, electricity prices (>6%) should jump, as the WA subsidy ends and its price level ~doubles. 4) The end of excise tax hikes on tobacco (3½% share) is a new disinflationary impulse. 5) UBS Evidence Lab data indicates food price (17% share) moderated to ~flat q/q (after 0.4%). 6) On the upside, the surge in oil prices will lift automotive fuel (3% share) prices sharply (7½%, ¼%pt).

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