Inflation Outlook Brightens as Australia Braces for Key CPI Update

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Following a decrease in annual inflation to 4.1% from a previous rate of 5.4%, optimism is in the air about reinforcing the disinflation trend witnessed in the latter half of the prior year. The drop to a 0.6% quarterly increase has been heralded as the smallest rise since early 2021, igniting hopes for continuous improvement.

While the RBA has not tweaked rates since their last adjustment in November, market participants are speculating that the upcoming steps will involve easing. However, projections for these reductions remain hazy and are presumed to be on the RBA's agenda later rather than sooner.

On the horizon is the upcoming CPI update on Wednesday, critical for the RBA's assessment of achieving their inflation goal of two to three percent. Both the RBA and banking economists envisage that this endeavor to rein in inflation might require continued slow and steady effort. Despite the arduous journey ahead, the projection sees mid-year inflation slowing to 3.3%, aiming to realign with the target at 2.8% by the close of 2025.

Economists from top Australian banking institutions predict a modest rise in March's CPI. Predictions range from 0.7% from National Australia Bank and Commonwealth Bank to a slightly higher 0.8% foreseen by ANZ and Westpac. This uptick is juxtaposed against an abnormally high 1.4% increase recorded in the previous March, leading to a potential dim in annual inflation rates.

Analysts from the Commonwealth Bank of Australia (CBA) have presented a reserved chalk-up for the headline CPI at 3.4%, slightly beneath current RBA projections. CBA's assessment is backed by signs of tempering price pressures apparent in recent business and industry surveys. Nevertheless, items like rents and education could witness substantial inflation, with healthcare poised as a potential wildcard for price acceleration.

Stepping back a few days from those paramount releases, the economic agenda includes the presentation of "flash" purchasing managers' surveys in April. Following the Anzac Day holiday, the ABS will also disseminate producer price and export-import indexes which will send corresponding ripples across the markets.

Market winds are also responding to the longest continuous decline experienced by American indices since fall of 2022. With this backdrop of six consecutive skids for the S&P 500 and Nasdaq, investors wrestle with an ambivalent earnings landscape and burgeoning international tensions. Thus, while the larger S&P 500 and Nasdaq experienced declines, Australian share futures saw a slight uplift, paired with mixed performances within local benchmarks.

Published:Monday, 22nd Apr 2024
Source: Paige Estritori

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