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The Consumer Price Index (CPI) measures the change in the price of goods and services from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation. The QI CPI figures should confirm that the underlying pulse of inflation in Australia remains weak. Soft wages growth, underpinned by elevated spare capacity in the labour market, means that core inflation will once again print sub-2%pa. But headline inflation is expected to lift to within the RBA’s 2-3% target band for the first time since QIII 2014. The annual headline inflation rate looks to have hit its cyclical low point in QII 2016 at just 1.0%. An anticipated very gradual tightening in the labour market and a lift in both domestic and global inflation expectations suggest that core inflation bottomed out in QIII 2016. That said, we don’t expect underlying inflation to pick up materially in 2017 and essentially have the annual rate of core inflation tracking sideways in a narrow 1¾-2% range throughout the year. As a result, rate rises are off the table. We think that the RBA remains on hold deep into 2018. The risk, in our view, still lies with further easing, particularly if the housing market falters ú
