Australia: Core CPI reaches 2% at last - TDS

Australia’s underlying inflation, which is the RBA’s policy focus, has at last reached 2%/y, back within the RBA's target band of 2-3%, and a welcome sight after this measure plummeted to 1.5%/y throughout 2016, explains the research team at TDS.

Key Quotes

“The markets did not materially react to the upgrades to history that created this event. Perhaps the ANZAC Day public holiday tomorrow is limiting trading interest.”

“While the pace of the pickup has been gradual, our justification for RBA hikes was about inflation (and wages growth) being 'off the floor' and so lifting the cash rate similarly 'off the floor' remains our core view. We look for an increase in the cash rate of +25bp in November, ending the year at 1.75%.”

“The AUD remains sticky at just over $US0.76, under-appreciating the fact that core inflation at 2%/y finally surprised to the upside compared with market and RBA expectations, and also sees core inflation within the 2-3% target band - the first time in two years.”