A good summary from JP Morgan:
The Q4 CPI data essentially delivered a 1-1 draw and, therefore, is inconclusive for next month’s RBA decision. The headline result printed softer than expected at flat (consensus 0.2%q/q, J.P.Morgan 0.4%q/q), but the all-important trimmed mean core measure was a little higher at 0.6%q/q (consensus 0.5%, JPM 0.7%). There was a small upward revision to the prior quarter’s core print to 0.4%q/q from 0.3%. This all leaves core inflation tracking at an average of 2.5%oya over the second half of last year, bang in line with the mid-point of the RBA’s target zone. Annual headline inflation remains above target at 3.1%oya, but it is trending down.
For the RBA, then, today’s data gives us little to work with – it doesn’t grease the wheels for the February rate cut that is 65% priced in financial markets (and all-but unanimously forecast by market economists – before the data), but nor does it shut the door. With the RBA’s Board meeting still two weeks away, we are sticking with our call for a 25bp cut in February, but without much conviction. Indeed, the decision will be a very close call, as recent minutes indicate was the case with each of the two rate cuts the RBA delivered late last year.
