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Australia's Q3 CPI data which is due for release on October 26th will be closely watched for indications on the course of Reserve Bank of Australia's policy action. Analysts expect underlying inflation in the third quarter to remain weak. Reuters forecasts for inflation was at 1.2 percent for 2016, 2.1 percent in 2017 and 2.4 percent in 2018.
The RBA is sticking to its long-standing 2-to-3 percent inflation target band under new governor Philip Lowe. Some economists have questioned whether the RBA's inflation target over time remains appropriate given inflation has been below the band since late 2014.
"We expect the trimmed mean to have risen by 0.3% q/q and the weighted median by 0.4% q/q. This would see the average of the two underlying measures rise by 0.4% q/q and be steady at 1.5% y/y," said ANZ in a note to clients.
In its recent communication, the RBA has sounded comfortable about policy settings. The changes to the statement on the conduct of monetary policy have increased the RBA’s ability to tolerate below-target inflation on financial stability grounds.
RBA Governor Lowe said that recent data suggest that the economy is adjusting reasonably well and he is watching employment and stability of financial system when setting rates. He said that inflation expectations have declined, but not at unprecedented lows; there is a need to guard against inflation expectations falling too far.
