Tuesday April 22, 2008 - 17:51:20 GMT
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AU Preview: Australian CPI Inflation Likely Rose in First Quarter
12:20 04/22 (CEP News) â€“ Australiaâ€™s Consumer Price Index measure of
inflation is widely expected to have accelerated in the first quarter
of 2008, but many economists say the rise will do little to spur
central bank action.
The headline CPI figure is expected to
have grown 1.1% in the first quarter, following a previous 0.9% gain in
the previous quarter. On an annual basis, CPI is expected to have risen
4.0% following the 3.0% gain recorded in the fourth quarter of 2007.
Economists say markets will be focused on the RBA trimmed mean and
weighted median CPI figures, which exclude the most volatile figures
from the quarter. RBA trimmed mean CPI is forecast to have risen 0.9%
in the quarter and 3.8% on an annual basis, while RBA weighted median
CPI likely grew 0.9% on the quarter and 4.0% on the year.
"For the first time in about five years, markets will be reasonably
relaxed with the announcement,â€ť noted Bill Evans, managing director of
Economics and Research at Westpac. â€śThe Governor of the Reserve Bank
has made it very clear in a number of recent statements and speeches
that he is expecting the annual rate of inflation to climb to 4% for
the year to the March quarter.â€ť
He noted that would require a 1.1% read on headline inflation for the quarter and 1% for the underlying measure.
â€śOur view is that the RBA will resist the need to cut rates until it
sees a second year of slowing demand growth (2% in 2009) and the
associated easing inflationary pressures,â€ť he wrote. â€śHowever with the
unemployment rate still below 5% by mid 2009 we think the Bank will
struggle with the case for rate cuts until well into 2009H2.â€ť
Apeksha Sumaria from ING agreed, noting that while the CPI releases
have acted as a precursor to forthcoming policy action from the RBA in
the past three quarters, that trend is likely to change.
The CPI figures will follow an unexpectedly sharp rise in the March
Producer Price Index, released at the start of the week, which many say
has added a degree of upside risk to the CPI inflation data.
First quarter PPI rose 1.9% on a quarterly basis â€“ its fastest pace
since data collection began in 1983, statistics from the Australian
Bureau of Statistics showed. Producer prices were 4.8% higher in the
first quarter compared to a year earlier â€“ the highest annual level
since the fourth quarter of 2000.
"Although the PPI data for Q1 nearly doubled expectations and raises
upside risk to Q1 CPI, the RBA is not expected to tighten further,â€ť
noted Jennifer Lee, a senior economist at BMO Capital Markets. â€śAfter
raising rates 25 bps to a 14-year high of 7.25% in March, the statement
that followed hinted that the move would be the last of the series of
Amanda Tan, a Treasury economist from St. George Bank, noted that a
third of the increase in Q1 PPI was the result of building
construction, which is not included in the CPI figures. â€śAccordingly,
the upside risk to (Q1) CPI outcome from (Mondayâ€™s) PPI result is
Most expect the RBA to hold rates at its next policy meeting on May 6,
but markets are pricing in a 10% chance of a hike following an
unexpected rise in March producer prices. The cash target rate is
currently at 7.25%.
However, markets are currently pricing in a 73% chance of a rate cut by
the end of the year, which ANZ economist Riki Polygenis called â€śoverly
optimisticâ€ť given that inflation is unlikely to return to the bankâ€™s
2-3% target band until mid-2009.
â€śThis sentiment has been reinforced by recent developments on commodity
markets, with recent surges in crude oil and global agricultural
commodity prices highlighting the abundance of near-term upside risks
to inflation, notwithstanding the downside risks further out stemming
from slower domestic demand growth," Polygenis noted.
By Stephen Huebl, firstname.lastname@example.org, edited by Cristina Markham, email@example.com
(END) Â©CEP Newswires - Â©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca
Related recent stories: (16:53 04/21) The Day Ahead Japan & Australia: Japan Supermarket Sales, Australian Q1 CPI (12:50 04/21) Central Bank Watch: Focus on BOC Rate Decision; Fed Speakers Say Mon Pol Has Limits (Update) (10:53 04/21) Australian Producer Prices Rise at Unprecedented Pace, Up 1.9% in Q1
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