Australia’s consumer price inflation likely to have remained low again in Q3

Low-inflation environment in Australia is very much expected to have continued in the September quarter, giving scope for the Reserve Bank of Australia to further ease policy if it is required to underpin demand and take certain steam out of exchange rate, according to Societe Generale.

The central bank policymakers would not welcome the fact that the Australian dollar’s trade-weighted exchange rate has strengthened in six of the initial nine months of 2016 and it appreciated by 5.8 year-on-year percent by September. This is one of the factors that imply upward pressures on consumer prices stayed low in the third quarter, said Societe Generale.

A renewed drop in prices of petrol is expected to have subtracted 0.1 percent from the index, further containing the CPI. In the meantime, with the supply of apartments rising steadily, the unusually slow rate of rent price growth is expected to continue, whereas the new homes cost is also expected to decelerate slightly. These two components contribute 15.4 percent to the CPI basket.

Food prices, which account for 17 percent in the CPI, are a bit of a wild card. The FAO’s World Food Price Index have stated that food prices have been increase in the second and third quarter, but the commodity price index for rural goods of RBA has been falling further, although lesser than in earlier months. Food prices are expected to have firmed only slightly, added Societe Generale.

The underlying cost price pressures in the nation have continued to stay quite weak. Nominal wage growth has steadied at very low rates, while unit labor cost growth remained negative in the second quarter in year-on-year terms.

Overall, the Australian CPI is likely to have gained very modestly again in the third quarter, In seasonally adjusted  CPI is expected to have risen 0.2 percent to 0.3 percent as compared with the prior quarter’s 0.6 percent rise, stated Societe Generale. This signifies that the overall inflation is expected to have stayed below the target rate in sequential terms as well. This is also expected for the core CPI, which is likely to have risen 1.8 percent sequentially.