TD Securities’ Global Strategy Team anticipates that Australia's headline Consumer Price Index (CPI) will ease to 4.2% year-on-year in May, down from 4.6% in the previous month, with consensus expectations at 4.3% [1]. This moderation is attributed to lower transport prices, driven by a decline in fuel costs, and a typical seasonal drop in recreational prices during May [1].
Despite the possibility of an upside surprise in inflation, TD Securities believes the Reserve Bank of Australia (RBA) is likely to remain on hold at its August meeting [1]. The team notes that softer new orders and easing price pressures in the S&P Australia Flash Composite Purchasing Managers' Index (PMI) for June further support the case for a steady cash rate [1].
TD Securities reiterates that the combination of easing inflation and subdued economic activity reduces the likelihood of any imminent policy tightening by the RBA [1].
CONCLUSION
TD Securities expects a further easing in Australian inflation, which, along with softer economic indicators, supports the view that the RBA will keep rates unchanged in August. Market participants are likely to interpret these developments as reducing the risk of near-term monetary tightening.