December CPI forecast below RBA’s expectations: Economists

Set to be released on 31 January by the Australian Bureau of Statistics (ABS), the December quarter Consumer Price Index (CPI) is the final crucial dataset said to dictate the Reserve Bank of Australia’s (RBA) February monetary policy decision.

As such, economists from Australia’s major banks have weighed in with their expectations on what the upcoming CPI data will reveal.

Westpac senior economist Justin Smirk confirmed that the major bank’s CPI forecast for December is a rise of 0.8 per cent per quarter, or 4.3 per cent annually, while its trimmed mean forecast sits at 0.9 per cent per quarter and 4.4 per cent annually.

Westpac’s forecast for headline inflation sits slightly lower than the RBA’s forecast of 4.5 per cent annually.

Meanwhile, Westpac’s forecast for the December monthly CPI indicator (due for release at the same time as the quarterly data) is a 3 per cent annual increase, a 0.3 per cent increase in the month.

“With two months’ worth of Monthly CPI Indicator data, we have greater confidence in our near-cast of the CPI,” Mr Smirk said.

“However, there are some significant components that are only surveyed in the third month of each quarter including childcare, health, motor vehicles, newspaper books & stationary, veterinary & other pet services and other financial services. As such, there is still some scope for a surprise on the day.”

Similarly, Commonwealth Bank of Australia (CBA) economist Stephen Wu stated the bank’s forecast for the 4Q23 inflation figures is at 0.9 per cent (quarter) and 4.4 per cent annually.

“Inflation has come down swiftly across the advanced economies, including in Australia. At its peak, inflation was between 5–9ppts above central banks’ targets. Now, inflation is less than 2ppts above central bank inflation targets,” Mr Wu said.

“We think the disinflationary trend will continue throughout 2024 and into 2025. Our models for aggregate inflation see a rapid decline occurring over 2024.”

ANZ’s economics team has forecast headline CPI to rise 0.8 per cent q/q and 4.3 per cent annually, with the same trimmed mean estimate of 0.9 per cent q/q and 4.4 per cent annually.

“A result in line with our forecast would be lower than the RBA’s latest forecasts of 4.5 per cent y/y for both headline and trimmed mean and hence consistent with no move from the RBA in February,” NAB’s economic team said.

NAB, having recently adjusted its interest rate forecast, stated in its latest Monetary Policy Update that the October and November monthly prints point to “a larger than expected easing in inflation than we (and the RBA) had expected”.

“We now see a trimmed mean print of 0.8 per cent q/q (4.2 per cent y/y) and for headline inflation to come in at 0.7 per cent q/q (4.2 per cent y/y),” NAB’s economic team stated.

“While the Q1 2024 CPI release is likely to see a tick-up in underlying inflation on a quarterly basis with the impact of rent subsidies dropping out, the easing trend in inflation will remain clear.”

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