Australia’s Q4 inflation likely to record seasonally adjusted gains of 0.4%

Australia's inflation reading for Q3 was surprisingly weak at only 0.1% q/q in seasonally adjusted terms, and at 0.4% and annualised rate. Inflation reading in Q4 is likely to be slightly stronger, with seasonally adjusted gain of 0.4% and annualised gain of just 1.5%, which will still be lower than the Reserve Bank of Australia's target range of 2%-3%.  The headline rate is expected to rise just 0.1ppt to 1.6%. Energy costs are likely to have continued to hold upward price pressures. Meanwhile, food prices are expected to have remained weak.

Tobacco prices are expected to add to inflation due to the country's higher tobacco taxes. Also, housing costs are projected to have contained upward pressure on overall inflation. Moreover, core measures are likely to have increased in comparison with Q3, replicating the quarterly increase to 0.6% q/q. Hence, core inflation measures are expected to be in the lower half of the central bank's target range, giving the RBA scope to further lower rates if this were considered essential to boost demand.