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Persistent services inflation contrasts with falling goods prices

Coolabah Capital’s Kieran Davies discusses the latest CPI data and what it means for rates.

Kieran Davies | Coolabah Capital

The monthly CPI for February showed underlying inflation tracking in line with the RBA's forecast profile, with persistent services inflation contrasting with falling goods prices in trend terms.  

The ex-volatile items/holiday travel CPI rose by 0.5% in February after increasing by only 0.2% for four months in a row, where the increase in February was the largest rise since August. 

This suggests that the RBA's preferred measure of inflation - the quarterly trimmed mean CPI, which is due on 24 April, ahead of the 6-7 May board meeting - is on track to post another increase of 0.8% in Q1, in line with the RBA's interpolated forecast.  There is still a margin of error in mapping from this monthly measure of underlying inflation to the quarterly trimmed mean CPI, although both rose by 0.8% in Q4.  

Importantly, the monthly CPI echoed the trend shown in other advanced economies, where ongoing strength in services inflation contrasts with goods disinflation.  

Goods and services prices have been seasonally adjusted and are broader in scope than the ex-volatile items/holiday travel CPI that proxies the trimmed mean CPI. But that is still useful in demonstrating how the RBA will need a material slowdown in services inflation to be confident that overall inflation will sustainably return to the 2½% midpoint of its target.  

Market forecasts versus outcome for the monthly CPI

Underlying inflation is tracking in line with the RBA’s forecast profile

Goods prices are falling, while services inflation remains strong


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All prices and analysis at 28 March 2024.  This document was originally published on Livewire Markets website on 28 March 2024. This information has been prepared by Coolabah Capital Ltd ACN 153 555 867 Australian Financial Services Licence No. 482238.

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