Australia's Q2 Inflation Reading Expected to Undershoot Central Bank's Forecast, BofA Securities Says

MT Newswires Live07-27

Australia's headline inflation is expected to average 4% in the second quarter, below the Reserve Bank of Australia's (RBA) 4.8% forecast, which should prompt the central bank to keep interest rates unchanged at its next policy meeting, BofA Securities said in a July 24 note.

The RBA's preferred trimmed mean consumer price index (CPI) reading is expected to rise by 3.7% year over year in the second quarter, slightly below the central bank's 3.8% forecast, BofA Securities said.

The brokerage firm forecasts the headline CPI to ease to 3.9% year over year in June, and expects the third consecutive monthly easing to mainly be driven by a 7.7% fall in auto fuel.

"While inflation remains too high, downside surprises should support the case for the RBA to remain on hold in August, especially as the impact of 75 basis points of hikes will only become evident from the [third quarter] CPI onwards," BofA said.

It added, however, that an upside inflation surprise could push the central bank to hike borrowing costs again, especially if oil prices remain above $90 per barrel.

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