Monthly CPI expected to return above 5%: Economists

The Australian Bureau of Statistics (ABS) is due to release the monthly Consumer Price Index (CPI) indicator for August today (27 September), with major bank economists expecting the CPI to return to above 5 per cent.

The previous CPI indicator rose 4.9 per cent in the 12 months to July 2023, down from the 5.4 per cent recorded in June 2023, marking the lowest annual reading since February 2022. However, persistently high services inflation and petrol prices are expected to drive up annual inflation.

According to Westpac senior economist Justin Smirk, the major bank is forecasting a 0.6 per cent increase in August, up from 4.9 per cent to 5.2 per cent, just under the 5.4 per cent pace reported in June.

“The ABS has done a lot of work to make the trimmed mean from the Monthly Indicator more consistent with the trimmed mean from the quarterly CPI,” Mr Smirk said.

“As such, we will be watching the August update to see how it is tracking compared to our September quarter forecast of 4.7 per cent per year.”

Mr Smirk added that Westpac has forecast an increase in total housing costs of 0.7 per cent.

“For housing, we are looking for a bit of a bounce in rents from a softer July, offset to some extent by a moderation in dwelling price inflation following a stronger July,” he added.

“The big unknown in August is electricity prices due to the contrasting tension between rising bills versus government rebates.”

Commonwealth Bank of Australia (CBA) economist Stephen Wu said the major bank expects a significant increase in petrol and diesel prices of “between 8 and 12 per cent per month” to drive inflation to 5.1 per cent.

Mr Wu also noted that the Reserve Bank of Australia (RBA) is “concerned” about services inflation in relation to the Fair Work Commission’s (FWC) award wages increase of 5.75 per cent.

NAB economist Taylor Nugent stated NAB’s concern that near-term inflation outcomes can “challenge the RBA’s forecast disinflation” is ongoing and continues to expect a further rate hike of 0.25 bps to bring the cash rate to 4.35 per cent in November.

“In other words, that surprising persistence on inflation that the RBA guidance indicates could push them to some further tightening may well be realised,” Mr Nugent said.

“The August Monthly CPI next week will be the first guide and we expect it to be back above 5 per cent year-on-year.

“Fuel prices are one boost, but the August indicator also has better coverage of services inflation than in July, which we expect to reflect persistence.”

[RELATED: CPI at 4.9% in July: ABS]