📝 See Australia Q1 Services Inflation Remaining Elevated: NAB

Our forecast is for inflation to remain elevated in quarterly headline terms at 1.3% q/q. Helpful base effects would see the y/y rate decline to 7.0%. By component, significantly smaller forecast contributions from fuel, new dwelling construction, and consumer goods are doing the lions share of the work.

For underlying we see a trimmed mean print of 1.3% q/q and 6.6% y/y. Market services inflation (excluding travel) is expected to remain very elevated, and utilities are expected to be strong, driven by continued unwind of earlier electricity subsidies and large gas price increases.

Travel and accommodation contributed 35bp to seasonally adjusted quarterly inflation in Q4 after surging in December. Prices were falling back in January and February. We expect that to continue in March and set up a negative contribution in Q2, but this volatile category is a key downside risk to our Q1 forecast.

A mapping from the retail and recreation and personal services prices components of the survey is consistent with underlying inflation a little higher that our forecast, with a range of reasonable specifications suggesting underlying inflation of around 1.35-1.55% q/q. Our bottom up forecast including information available from the Monthly Indicator and other sources means we think the risks for the actual printed number are centred a little lower, around 1.3% q/q.- NAB