📝 Monthly CPI Indicator Poses Downside Risks to Our Q/q Forecasts: Westpac

Combined the January and February Monthly Indicators represent a significant downside risk to our current forecast for 1.5%qtr increase in the March quarter CPI. To achieve that forecast the Monthly CPI Indicator would need to increase by around 1.5% to 1.6% in March.

The largest downside surprise for us was the 14.6% fall in holiday travel in February. We had been looking for a 6.0% fall in the month. This doubled the size of the fall in recreation & culture from our forecast 3.1%mth decline to -6.0%. While we do expect something of a reversal in March history tells us we should not expect it to make up for the 9% fall in recreation & culture in the first two months of 2023.

We are processing the Monthly CPI Indicator data to incorporate it into a complete Q1 CPI preview. Our current published inflation forecast for Q1 are 1.5%qtr/7.2%yr for the CPI and 1.3%qtr/6.6%yr for the Trimmed Mean. For now, we can state the January and February Monthly CPI Indicator results presents a meaningful downside risk to that forecast.

- Westpac