Westpac now expects that the fourth quarter consumer price index (CPI) to be released later this month will show quarterly growth of 1.6 per cent, instead of the earlier predicted 2 per cent, due to downgrades to its forecast for food, auto fuel and dwelling prices.
As such, the big four bank said its end-2022 forecast for the CPI has been lowered from an annual rate of 8.0 per cent to 7.5 per cent, while the trimmed mean forecast is now 6.7 per cent from its earlier estimate of 6.8 per cent.
“We are increasingly confident that the December quarter will see the peak in the inflationary pulse,” said Westpac’s senior economist, Justin Smirk.
“So as we head into 2023, the question is shifting from worrying about how much further the inflationary pulse may have left to run to questioning how fast will that pulse disinflate,” Mr Smirk noted.
Incorporated into Westpac’s inflation rethink were the packages reducing or offsetting rising energy prices, which were passed into legislation last month.
The bank has also revised its end-2023 CPI forecast and trimmed mean forecast. Namely, it now sees headline CPI inflation at 3.9 per cent by end-2023, down from its previous forecast of 4.1 per cent and meaningfully less than the Reserve Bank’s (RBA) forecast of 4.7 per cent.
“Our trimmed mean inflation forecast for end-2023 is now 3.6 per cent, down from our previous forecast of 3.8 per cent, which matched the RBA’s forecast,” Mr Smirk said.
In late November, the Australian Bureau of Statistics (ABS) released its most recent monthly CPI indicator, which showed a decrease in the annual rate of headline inflation to 6.9 per cent.
The indicator covering the month of October was well below market expectations for a 7.6 per cent annual rise and was down from 7.3 per cent in September.
At the time, Treasurer Jim Chalmers said the data “shows us there are reasons to be carefully optimistic, that we are getting near the inflationary peak, but we’re not there yet”.
The ABS is set to release the monthly CPI indicator for the month of November on 11 January, ahead of the release of the fourth quarter CPI figures and December’s monthly CPI indicator on 25 January.
