Soft new dwelling prices keeping inflation in check
Commonwealth Bank’s latest financial forecasts predict a 0.6% increase in trimmed mean consumer price inflation (CPI) for the March quarter, a result that would return annual underlying inflation to the Reserve Bank of Australia (RBA)’s target band.
The banking major sees annual trimmed mean inflation (the RBA’s preferred metric) at 2.8%, while headline CPI is expected to rise 0.8% for the quarter and drop to 2.3% year on year.
These forecasts sit slightly below the RBA’s own expectations, which assume a 0.7% quarterly increase in trimmed mean CPI.
In other words: A May interest rate cut is a foregone conclusion. “If the trimmed mean CPI is in line with our forecast (or below) then we consider a rate cut in May is a done deal,” said CommBank analysts in a Tuesday note.
The RBA held rates in April after cutting in February, although Governor Michele Bullock (pictured) has warned of an ongoing “period of uncertainty and adjustment” which could influence the hawkish contingent of the central bank.
CommBank’s outlook factors in a significant 15.3% quarterly jump in electricity prices as rebates unwind, along with seasonal rises in education and health costs.
Meanwhile, ongoing weakness in new dwelling prices and holiday travel are expected to exert downward pressure on inflation. “Ongoing discounting activity by builders amid weak demand has driven lower consumer prices,” said analysts.
The bank expects rents to have increased by 1.2% in the March quarter, contributing eight basis points to headline inflation. This marks an acceleration from the 0.5% quarterly rise in the previous period, which had been dampened by higher Commonwealth Rent Assistance.
