Looking ahead to Australia and New Zealand

Q3 CPI to be low. Underlying CPI forecast to rise 0.5% and headline flat. RBA Minutes, Stevens speech and NAB Quarterly Business Survey also next week



Wednesday’s September quarter CPI is expected to confirm that inflationary pressures remain benign. The headline CPI is expected to be flat in Q3, lowering the annual rate from 3.0% to just 1.9%. We estimate that the removal of the carbon tax will take off around 0.2pps from the headline CPI in Q3, mainly through lower electricity prices. Downward pressure on the CPI will also come from fuel, where we expect a 3% fall which will detract 0.11pps from the quarterly change. These will offset the rise in tobacco prices due to the biannual indexation in September.

Our modelling points to +0.5% growth for underlying inflation (2.6%yoy). That would keep the RBA on track to meet its end-year forecast for the underlying CPI of 2¼%. More broadly, our model suggests core inflation will remain off the radar as a policy concern for at least a couple of years, while the unemployment rate remains elevated and wages growth subdued.

On Tuesday next week the RBA releases the Minutes from the October meeting, which should reinforce recent themes – unemployment is still rising and policy will remain unchanged for some time, despite the rising concern on investor housing activity.

RBA Governor Stevens is speaking at the Annual General Meeting of the Australian Payments Clearing Association, in Sydney, on Thursday morning. Speeches by Christopher Kent and Phillip Lowe also during the week.

Also on Thursday the NAB releases the Quarterly Business Survey for the September quarter.

New Zealand

It’s a busy week for New Zealand data, centred around Thursday’s Q3 CPI result. Our central view is for a 0.5% increase, which would ease annual CPI inflation to 1.2%, from 1.6%. The risk is for a slower 0.4% for the quarter, meaning 1.1% y/y. The RBNZ, in its September MPS, expected a 0.7% increase in the Q3 CPI, for annual inflation of 1.3% – so the potential for a downside surprise seems high, feeding the notion of a longer pause on the OCR.

The question for Monday’s PSI is whether it can match the strong performance of the PMI in September (58.1). Monday afternoon’s ANZ-RM consumer confidence report (delayed from last Thursday) is the first following September’s (clear-cut) election result. For Tuesday’s migration numbers it seems a bit soon to witness the net inflow coming off recent extreme highs, while visitor arrivals are likely to consolidate recent strong gains, in being about flat compared to September last year.

Credit card billings are due Wednesday, but more attention will turn to Friday’s merchandise trade figures for September. We believe price weakness, notably for dairy exports, will begin dominating here. This is why we’re picking a 2% fall in export values compared to their year-ago level, meaning a monthly merchandise trade deficit of $297m, compared to a shortfall of $221m for September last year. For Friday’s LVR data, we don’t suspect the result will be much different to August’s 6.5% proportion, so still well under the 10.0% cap. The real question is how much longer the LVR restrictions will remain in place, at least in their present form.

Speaking of which, note the RBNZ is hosting a workshop on Wednesday, regarding “The Interaction of Monetary and Macroprudential Policy”. While this is a closed shop, watch out for anything that might come from it. From a practical point of view, the workshop would seem to tie in with announcements the Reserve Bank looks likely to make around macro-prudential policy in its next Financial Stability Report, due 12 November.


Chinese Q3 GDP on Tuesday is expected to confirm the slowing in growth that was evident in the monthly activity indicators. GDP is expected to rise 1.8% in Q3 after the 2.0% rise in Q2, lowering the annual rate to 7.2% from 7.5%. The monthly indicators are also expected to be softer. The preliminary reading for the HSBC manufacturing PMI is forecast to fall to 49.9 in October from 50.2, while the annual rate of growth in retail sales and fixed asset investment is also set to weaken in September. Some better news is expected with industrial production forecast to rise 7.5%yoy in September after the plunge to 6.9% in August, but that would still leave growth well below the 9.0%yoy rate in July. September property prices are released on Friday.