In a note on the 2016 fourth quarter inflation figures, due to be released today by the Australian Bureau of Statistics, QIC said the rise in oil prices in the second half of 2016 is likely to help stablise headline inflation numbers.
Commenting ahead of the CPI release, QIC chief economist Matthew Peter said headline CPI is likely to bounce higher from its low point in mid-2016.
"QIC expects annual growth in headline CPI (not seasonally adjusted) to rise modestly from 1.3 per cent in the September quarter of 2016 to 1.5 per cent in the December quarter, up from a two-decade low of 1 per cent in the June quarter of 2016," Mr Peter said.
The low inflation figures in the March 2016 and June 2016 quarters put the RBA under pressure to cut the official cash rate after CPI fell below the bank's target of 2-3 per cent.
The RBA did eventually cut the cash rate by 25 basis points to 1.5 per cent at its 2 August 2016 meeting, in the hope that the action would help "inflation return to target over time".
But the CPI numbers improved in the second half of 2016, and Mr Peter said the December 2016 figures should be neutral for RBA monetary policy.
"We continue to expect the RBA to keep rates unchanged at 1.5 per cent throughout 2017. However, if the underlying inflation outlook surprises significantly to the downside (i.e., around 0.25 per cent quarter-on-quarter) the RBA may be forced to cut rates to 1.25 per cent in February," he said.
"We would argue that the RBA’s Australian economic growth forecast of 3 per cent average annual GDP growth through 2017-2018 is too optimistic. The RBA’s forecast was completed prior to the release of the September quarter national accounts data, which showed the Australian economy went backwards over the quarter."
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