Australia: RBA will welcome moderating inflation but it is too early for the Bank to pop the champagne – TDS

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Australia’s November inflation eased further to 4.3% year-on-year, down from +4.9% in October. Despite the downside surprise, it is too early for the Reserve Bank of Australia (RBA) to consider cuts, in the view of economists at TD Securities.

CPI moving in the right direction

Australian monthly inflation for November printed 4.3% YoY. This follows the 4.9% YoY monthly October CPI print undershooting expectations. Inflation outcomes are clearly moving in the right direction.

We believe the RBA will welcome today’s report but it’s too early for the Bank to pop the champagne. While Tradables CPI at 1.6% YoY is the lowest since May’21, Non-Tradables CPI at 5.7% YoY is still too high, and this is after accounting for rental assistance and electricity rebates. The risk for the RBA is that domestic prices remain sticky.

Our sense is that markets have priced in RBA easing too quickly and we would be biased in favour of RBA OIS steepeners as some of this easing is priced out.