Money markets have doubled down on bets the RBA will follow up with another in May, amid mounting inflation expectations as the war drags on.
The central bank will closely scrutinise inflation data for February, set to be published by the Australian Bureau of Statistics on Wednesday.
Commonwealth Bank head of Australian economics Belinda Allen said the release will offer one last bit of information about how prices were tracking before the conflict.
She expects a fall in annual headline inflation from 3.8 per cent to 3.7 per cent, driven in part by a 2.8 per cent decline in fuel costs.
As the sight of petrol prices approaching $3 a litre indicates, it’s the calm before the storm.
The ABS’s February reference period predates the recent surge in the price of fuel, which is set to jump beyond 25 per cent through March, said NAB senior economist Taylor Nugent.
“In broad terms, the cost shock emanating from the Middle East will appear first and most obviously through automotive fuel prices, which will add around one percentage point to March CPI, sending the year-ended rate up to around 4.6 per cent,” he said.
Higher airfares will flow through from April for domestic and May for international flights, while higher costs passed through other industries such as transport, logistics, agriculture, packaging, manufacturing and construction will be evident over coming months, he said.
None of this will show up in Wednesday’s data.
But luckily for the RBA, March inflation data is due to be released before its next meeting in May and will provide a much clearer impression of the direction of the economy post-conflict.
The increase in fuel costs won’t show up in the RBA’s preferred quarterly trimmed mean inflation measure, which omits volatile items.
Because the price spike came late in the quarter, most of the impact will only be felt in the June quarter, where NAB currently predicts headline inflation peaking at five per cent, Mr Nugent said.
AAP