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Inflation likely peaked in Q4 2022, says NAB

3 minute read

The big four bank has released a preview of next week’s inflation data.

The consumer price index (CPI) is expected to have peaked in the fourth quarter of last year, according to new forecasts issued by NAB, ahead of an anticipated slowdown in 2023.

According to the bank’s economists, the Q4 2022 CPI data released by the Australian Bureau of Statistics (ABS) on 25 January will show headline inflation of 7.5 per cent year-on-year (y/y) and 1.6 per cent quarter-on-quarter (q/q).

“While our forecast is for headline inflation to fall short of the RBA’s 8 per cent y/y forecast peak, we do not expect the detail to make for comfortable reading,” commented NAB economist Taylor Nugent.

“We expect trimmed mean to remain elevated at 1.6 per cent q/q and rise to 6.6 per cent y/y with market services remaining uncomfortably high amid widespread cost pressures and strong demand.”

Mr Nugent noted that the upcoming data release was still expected to show broad-based inflation, including through domestic labour cost-sensitive components that he said were typically more persistent drivers of inflation dynamics.

“As a result, we continue to expect the RBA to raise interest rates at the February meeting, and again at the March meeting,” he said.

“Compared to the RBA’s early November SoMP forecasts, a more material pullback in fruit and vegetable prices from August highs, and a smaller-than-anticipated fuel contribution are the main reasons for our lower headline forecast.”

While NAB’s forecast for underlying inflation of 1.6 per cent q/q is down from 1.8 per cent in Q3, Mr Nugent said that this was almost entirely due to slowing new dwelling construction cost rises.

On the outlook, the big four bank has predicted that inflation will slow through 2023, particularly on a y/y basis, falling below 7 per cent y/y in Q1 and reaching around 6 per cent y/y in Q2.

“The RBA will have growing confidence that some of the sectoral drivers of the initial inflation surge are turning disinflationary and support a material retreat in inflation through 2023. But that will not, by itself, get inflation back to target sustainably,” said Mr Nugent.

“Key for the RBA remains the outlook for wage growth, the extent to which wage and price setting behaviour has shifted, and what this means for whether inflation will fall sustainably back to target.”

The wage price index is due to be released by the ABS on 22 February.

Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.