March quarter CPI expected to drop under 4%

With the March quarter Consumer Price Index (CPI) data set to be released next week (24 April) by the Australian Bureau of Statistics (ABS), economists from the big four banks have predicted further easing in the inflation rate.

This upcoming dataset is expected to be a crucial piece of information that will inform the Reserve Bank of Australia’s (RBA) official cash rate decision during its next board meeting scheduled for 6–7 May.

ANZ senior economist Catherine Birch said the bank expects 1Q24 headline CPI to print at 0.8 per cent quarter on quarter (qoq), up from the 0.6 per cent qoq print in 4Q23 but would still see annual inflation “slow sharply” to 3.5 per cent annually to its lowest rate since December 2021.

“Our forecast appears broadly in line with the RBA’s February forecast for headline CPI but may be marginally higher than its forecast for trimmed mean,” Birch said.

“While the RBA has in the past shown little tolerance for inflation exceeding its forecasts (evident in the November 2023 cash rate hike), we do not think this will be enough for it to do an about-turn and consider a hike option at the May meeting, given the moderation in its policy stance.”

Similarly, Westpac’s forecast is in line with ANZ’s after it lifted its forecast from 0.7 per cent to 0.8 per cent qoq.

Westpac senior economist Justin Smirk said the updated forecast is a “rounded down estimate”.

Smirk added: “As we only have two of the three months of the quarter from the Monthly CPI Indicator there is still the possibility of a surprising result in both the monthly and quarterly prints.”

However, he added that the estimates still remain consistent with the major bank’s current forecast for the CPI to be at a 3 per cent annual pace by the end of the year.

Forecasts from the Commonwealth Bank of Australia (CBA) see headline CPI return slightly lower than Westpac and ANZ, with headline CPI expected to increase by 0.7 per cent qoq and 3.4 per cent annually.

CBA economist Stephen Wu said these numbers are “little changed” relative to the major bank’s earlier forecasts.

“We have nudged down our quarterly headline CPI forecast after February’s CPI indicator downside surprise. Our forecast for core inflation over the March quarter is unchanged,” Wu said.

Meanwhile, the economics team at NAB expect the 1Q24 CPI to show “a slight pick-up” in underlying inflation on a quarterly basis to 0.9 per cent, with the year-ended number continuing to ease to 3.8 per cent.

“Rents, insurance, and other services remain key drivers and while this will not be out of line with the RBA’s forecasts, more improvement will be needed before a first rate cut, which we continue to expect in November this year,” NAB’s economics team stated.

Wu stated that CBA does not expect inflation in Australia to follow the recent path seen in the US due to monetary policy being “much more direct and potent here”.

NAB’s economics team expects the Federal Reserve to begin cutting interest rates from September as US inflation re-accelerated over recent months along with a strong labour market.

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