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Critical Australian inflation data due tomorrow – likely to tick the RBA rate cut box?

January 28, 2025 at 01:25AM
We get December 2024 month and Q4 2024 inflation data from Australia on Wednesday, January 29, 2025 at 11.30 Sydney time:

0030 GMT

1930 US Eastern time

The quarterly figures are the focus. More on this under the preview.

The inflation report will be pivotal in determining whether the Reserve Bank of Australia (RBA) moves ahead with an interest rate cut next month, according to Commonwealth Bank of Australia (CBA) economists.

CBA estimates that the trimmed mean Consumer Price Index (CPI)—a key measure watched by policymakers—rose 0.5% in Q4, bringing the annual rate down to 3.2%. On a six-month annualised basis, core inflation is forecast to have eased to 2.5%, placing it squarely in the RBA’s 2-3% target range.

With headline inflation already within the target band, CBA analysts suggest that a softer-than-expected underlying inflation print could force the RBA to reassess the scale of inflationary pressures in the economy.

“A low inflation read will greenlight a February rate cut by the RBA in our view,” CBA said, highlighting that an undershoot relative to the central bank’s latest forecasts would likely strengthen the case for monetary easing.

***

The Reserve Bank of Australia next meet on February 17 and 18.

***

A note on the monthly vs. quarterly data, if you are interested.

In Australia, the Consumer Price Index (CPI) measures the average change over time in the prices paid by households for a fixed basket of goods and services. Traditionally, the Australian Bureau of Statistics (ABS) has published CPI data quarterly, providing comprehensive insights into inflation trends.

To offer more timely information, the ABS introduced a Monthly CPI Indicator in October 2022. This monthly indicator includes updated prices for around two-thirds of the items in the CPI basket, offering a more frequent snapshot of inflation. However, it is less detailed than the quarterly CPI, as it covers fewer items and provides data only at the national level. The monthly indicator includes aggregate headline CPI, trimmed mean, each of the 11 CPI groups (e.g., clothing & footwear, health), and some selected expenditure classes (e.g., automotive fuel, new dwelling costs, rents, domestic and international travel, and some food categories).

While the monthly CPI indicator follows similar trends to the quarterly CPI, they are not identical. This is because, when prices are collected less frequently than monthly, the monthly CPI indicator assigns price changes to the month they are collected, whereas in the quarterly CPI series, price changes are allocated across the entire quarter. Therefore, the average of the index in the three months for the monthly CPI indicator will not equal the index of the quarterly CPI.

In summary, the monthly CPI indicator provides more frequent updates on inflation trends, while the quarterly CPI offers a more comprehensive and detailed analysis.

This article was written by Eamonn Sheridan at www.forexlive.com.

Critical Australian inflation data due tomorrow – likely to tick the RBA rate cut box?