Australia’s underlying inflation drivers remain largely subdued, says ANZ

The ANZ Inflation Risk Index for Australia continues to imply that the nation’s underlying inflation drivers continue to be greatly subdued. The risk of below-target inflation continues to be high at about 40 percent in April, which is much above its historic average. However, it is below the peak of about 70 percent recorded last November.

The risk of within-target inflation rose in April and is coming closer to its long-run average. Together, these indices imply that core inflationary pressures have steadied; however, risks continue to be tilted to the downside.

The likelihood of above-target inflation continues to be at about 0 percent, widely the same for the 15th straight month. This implies that inflationary pressures in Australia continue to be narrowly based. For underlying inflation to have a good possibility of converging to target, the above-target risk index is need to creep higher, stated ANZ.

The softness in core inflation implies that rate rises are off table for some time. This is in line with the view that the Reserve Bank of Australia is expected to keep rates on hold until 2018, added ANZ.