CBA on inflation and Reserve Bank of Australia – RBA to revise their inflation forecasts

<p>Analysts at Commonwealth Bank of Australia on yesterday's Australian inflation data and what it means for the Reserve Bank of Australia.</p><ul><li>The December quarter CPI was below market expectations on both the headline and underlying measures. </li><li> Importantly for the outlook for monetary policy , it was materially below the RBA’s forecasts .</li></ul><p>The December quarter CPI was below market expectations on both the headline and </p><p>underlying measures. </p><p>I</p><p>mportantly for the outlook for monetary policy</p><p>, it was</p><p>materially below the RBA’s forecast</p><p>s</p><p>.</p><ul><li>The headline CPI rose by 0.6 % /qtr in Q4 23 and the annual rate dropped to 4.1 %.</li><li>The trimmed mean CPI increased by 0.8 %/qtr and the annual rate stepped down to 4.2 %.</li><li>Inflation as measured by the monthly CPI indicator dipped to 3.4%.</li></ul><p>And, on the Reserve Bank of Australia meeting next week, and beyond:</p><ul><li>The RBA will leave the cash rate on hold at the February Board meeting in what should be a straight forward decision.</li><li>We continue to expect an easing cycle commencing in September ( we have 75bp of rate cuts in our profile in late 2024 and a further 75bp of easing in H1 25, which would take the cash rate to 2.85% ).</li></ul><p>Also coming up from the Bank next week is the February Statement on Monetary Policy (SMP). CNA wrap it up:</p><ul><li> We expect the RBA will downwardly revise their inflation forecasts. The Q4 23 outcome means mechanically the RBA will need to lower their inflation profile over 2024. But the RBA may go one step further and make an additional small downward adjustment to their inflation profile given the recent trends in household expenditure and the labour market.</li></ul><p>The RBA cash rate is finally above the rate of inflation.</p>

This article was written by Eamonn Sheridan at www.forexlive.com.