Signs of disinflation expected in upcoming CPI data: Economist

With the November monthly Consumer Price Index (CPI) dataset to be released today (10 January) by the Australian Bureau of Statistics (ABS), bank economists have weighed in with their predictions on what the dataset will reveal.

Commonwealth Bank of Australia (CBA) economist Stephan Wu said the major bank expects inflation to ease to 4.4 per cent in November, with signs of disinflation in market services expected following the strong 3Q23 print.

Mr Wu said the November CPI indicator will be “the first of two critical inflation prints” in the lead-up to the Reserve Bank of Australia’s (RBA) first monetary policy meeting set to take place on 5–6 February.

“The 4Q23 CPI (31 January) is more policy relevant, as it remains the benchmark measure of consumer prices in the country. But the November CPI indicator will set the tone and expectations for the 4Q23 inflation figure,” Mr Wu added.

“We are confident the data will show a continued easing in inflationary pressures. We forecast consumer prices rose by 0.5 per cent in original terms in the month and annual CPI inflation eased to 4.4 per cent per year in November (from 4.9 per cent per year in October).”

CBA’s chief economist Stephen Halmarick recently stated that the RBA has a high chance of achieving its desired “narrow path” in 2024, as rate hikes are effectively slowing the economy without pushing the country into recession.

“The good news is that the pace of global inflation clearly [began] decelerating around mid-2023 and we expect further deceleration in 2024, however, markets will also focus on the balance between returning inflation to 2 per cent targets, without doing too much damage to labour markets,” Mr Halmarick said.

“CBA is forecasting the annual rate of inflation back at 3 per cent at the end of 2024, well ahead of the RBA’s current forecast and closer to the Commonwealth government’s latest forecast.”

Furthermore, the central bank revealed in the minutes of its December monetary policy meeting – which saw the cash rate paused at 4.35 per cent – that the board had noted “encouraging signs of progress” towards the RBA’s objectives.

The CPI estimate for November is predicted to be slightly higher by Westpac, which expects the November CPI to return a result of 4.5 per cent, according to senior economist Justin Smirk.

“We are still to get an updated estimate for market services inflation (most services prices are updated in the mid-month of each quarter) and as such have held our estimate for the trimmed mean at 0.9 per cent per quarter for the December quarter,” Mr Smirk added.

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