The December quarter consumer price index is the proverbial blockbuster data release on Wednesday. With the market pricing in two interest rate hikes by the middle of 2019, the momentum on inflation will be key to determining if such expectations are valid.
Inflation has been remarkably low over the last two and a half years. Another low result (say 0.5 per cent or less for underlying inflation for the quarter) would push back interest rate hike expectations. With the December quarter inflation data, higher petrol prices by themselves are set to add around 0.25 per cent to the headline result. When this one-off is stripped out of the result to get the underlying inflation rate, it is likely that annual inflation will remain below 2 per cent, to yet again be below the bottom of the RBA target range.
Will the RBA hike rates when inflation is persistently below the bottom of its target? Don’t bet on it.
Source: RBA
