Taylor Nugent | Markets Research
May and Q2 CPI Preview – Q2 likely unhelpful but not quite derailing
- We will finalise our Q2 CPI forecast after the May monthly inflation indicator next week (26 June; this second month having better coverage of services). Our preliminary pick for Q2 Trimmed Mean is 0.9% q/q and 3.9% y/y, one tenth above the RBA’s May SoMP forecast of 0.8%. For Headline we expect 0.8% q/q and 3.6% y/y, below the RBA’s 1.0% q/q.
- For the May indicator, we pencil in 3.6% y/y, unchanged from April and for ex-volatiles and travel 3.9% from 4.1%. Slower food and takeaway inflation than a year ago help the underlying measure, while smaller falls in fuel prices than a year ago supports headline and travel adds volatility.
- The RBA has the luxury of waiting for the full Q2 CPI on 31 July before their next meeting in August. Watch for speeches in between that may give a hint to the RBA’s interpretation of the May indicator, with Deputy Governor Hauser speaking on 27 June.
- The RBA’s comfort tolerating the upside risk inherent in their chosen policy approach is frayed. Our base case remains that slow growth will give them enough confidence in the outlook for further progress on inflation to stay on hold, but near-term risk sits with a hike. NAB has long pencilled in a first cut in November, but an absence of genuine progress across the domestically sensitive prices this quarter would further skew the risk to on hold for longer.
- Looking ahead to Q3 CPI (30 October), government rebates will subtract sharply from headline CPI. Earlier subsidies unwind but are more than offset by new state and federal subsidies. On our numbers, it’s a net 0.5ppt subtraction, leaving our Q3 headline forecast at 0.4%. q/q. This mostly, but not exclusively, weighs on headline, and has only a temporary impact, pushing the y/y rate back above 3% in Q3 2025.
For the full analsysis, discussion of RBA implications, and estimates of electricity subsidy impacts from Q3, view the attached report
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All prices and analysis at 20 June 2024. This information has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB").
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