Deutsche Bank-Macro Notes Australias stalling disinflation clues from C...-107993637

DeutscheBankEconomicsDateResearch3May2024MacroNotesAustralasiaAustraliaAustralia'sstallingdisinflation:cluesPhilOdonaghoefromCanada...Economist+61-2-8258-1606WhencomparedwithCanada,therecentupswinginAustralianinflationappearsdrivenbyfactorsimmunetomonetarypolicyAustralia'sdisinflationtrendhasseenanunexpectedreversalinrecentmonths,justasCanadianinflationhascontinuedtoslow.Marketpricinghasrespondedaccordingly:~10pbsofhikesarenowpricedinfortheRBAbyAugust.TheBoCisfullypricedtocut25bpsinJuly.Inthatcontext,CanadaservesasahelpfulbenchmarkforilluminatingAustralia'sinflationreversal.AcloserlookshowsthatthedivergencebetweenthetwocountriesreflectsdifferencesacrossjustthreeCPIcomponents:(1)thecostofshelterforhomeowners;(2)alcohol&tobacco;and(3)insurancepremiums.Whenthedivergenceininflationtrendsissorecent,easytopinpoint,anddrivenbyfactorsmostlyimmunetomonetarypolicy,wethinkthereisareadthroughfortheRBA.Apolicyresponseisnotrequired.Atleastnotyet.DetailsAnotabledivergencehasopenedupintheunderlyinginflationtrendsbetweenAustraliaandCanadainrecentmonths.ThedisinflationinAustralia'scoreCPIsinceearly2023hascometoanabrupthalt-afterfallingby1.5pptsinyear-endedtermsfromOctober2023toJanuary2024,Australia'strimmedmeaninflationindicatorhasrisenby¼pptoverthetwomonthstoMarch.Ontheotherhand,Canada'scoreinflationhascontinuedtoslow,fallin...