The Q1 CPI reading is out on Wednesday 24th April at 11.30am and we expect an increase of 0.5% q-o-q 2.6% y-o-y (market consensus 0.6% q-o-q, 2.7% y-o-y) after rising 0.2% q-o-q, 2.2% y-o-y in Q4 2012. The main groups pushing prices up in Q1 were likely to have been education, health, housing and financial services offset partly by limited movements in food prices and the prices of clothing and household goods. We are slightly at odds with the market consensus on what the seasonally adjusted prices may show including the two main underlying inflation measures, the trimmed mean and weighted median (we expect 0.6% q-o-q, 2.5% y-o-y for both measures against market consensus of 0.5% q-o-q, 2.4% y-o-y). The seasonal adjustment factors are a little difficult this quarter because price discounting in major retail stores appears to have been more extensive than usual and food prices that more often than not are inflated in Q1 because of poor weather conditions were somewhat less disrupted this year. The boundaries for what would constitute relatively low or high inflation readings are sub 0.4% q-o-q (CPI and underlying readings) or above 0.7% q-o-q. We doubt that the Q1 inflation readings will be sufficient alone to cause the RBA to change its current monetary policy stance, i.e. cash rate steady at 3.00% with an easing bias.
