Australia: Low inflation outlook - Westpac

Justin Smirk, analyst at Westpac, suggests that the moderating housing costs, competitive retailing & low inflation expectations have locked in low inflation for the Australian economy.

Key Quotes

“The CPI rose 0.5%/1.8%yr in Q4; the average of the RBA core inflation measures rose 0.4%qtr/1.8%yr. Inflation continues to hold under the RBA’s target band and with the two quarter annualised pace running at 1.2% suggests it is unlikely get back into the band anytime soon.”

“Moderating housing inflation has been key to containing inflation below the RBA target band. Even with our expectation for a modest lift in housing inflation through 2020, we still don’t see it being able to sustain inflation within the target band.”

“With downside risks to dwellings and rents inflation in the CPI, downside risks are apparent for our forecasts for both headline and core inflation.”

“Our preliminary estimate for the March quarter 2019 CPI is 0.1%qtr /1.4%yr for headline and 0.4%qtr/1.6%yr for the average of the core measures.”