Synopsis:

Credit Agricole provides insights into the implications of the upcoming Australian CPI data release on the AUD's performance and the Reserve Bank of Australia's (RBA) monetary policy outlook. The bank highlights the challenges posed by sticky services inflation and rising costs in certain sectors, which could influence the pace of inflation deceleration.

Key Points:

• CPI Data Release: The Australian CPI data scheduled for release on Wednesday is anticipated to play a significant role in shaping the AUD's performance for the week. This follows similar trends observed in New Zealand’s recent inflation data, where falling goods prices were offset by persistent services inflation.

• Inflation Trends and Expectations: While goods prices, particularly food, are expected to continue their downward trajectory, services inflation remains stubborn, particularly due to rising education, housing costs, and higher insurance premiums. These factors contribute to the complexity of reducing inflation to within the RBA’s target range of 2-3%.

• Market Consensus on Inflation Rates: Consensus forecasts suggest a decrease in headline inflation from 4.1% year-over-year (YoY) to 3.5% YoY for Q1. The RBA’s preferred measure, trimmed mean inflation, is also expected to show a decline, albeit more modest, from 4.2% YoY to 3.8% YoY.

• Implications for RBA Monetary Policy: The data is expected to solidify market expectations that the RBA will likely hold off on any rate cuts until late 2024, if at all this year. The RBA’s own forecasts for H1 2024 predict headline inflation at 3.3% and trimmed mean inflation at 3.6%, indicating a cautious approach towards easing monetary policy.

Conclusion:

As Australia prepares for a significant CPI data release, Credit Agricole underscores the challenges of managing persistent services inflation alongside declining goods prices. The upcoming inflation figures are crucial for the AUD's trajectory and could reinforce the stance that the RBA may delay rate cuts, awaiting more definitive signs of inflation aligning with its target range.