The March quarter CPI is forecast at 1.4% taking the annual pace down 0.8ppt to 7.0%. The step down is due to an ongoing moderation in inflation for food, a seasonal decline in clothing & footwear, a further moderation in dwellings and household contents & services inflation, as well as falling prices for auto fuel and audio visual & computing equipment. The Trimmed Mean is forecast to lift 1.4% in March with the annual pace set to moderate to 6.7%, down from 6.9% for December, which we see as the peak for the cycle.
Critical to the RBA decision in May will be this week’s Q1 CPI report. Westpac remains of the view that, while moderating, another high annual inflation print in Q1 warrants one further 25bp hike in May to 3.85% after which the cash rate will be left on hold until early-2024 to quell lingering risks.
-Westpac
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