Inflation rate may miss target
The SPI futures index was up 22 points to 5343. Global financial markets finished last week in positive territory, after the short-term resolution of the US budget and debt crisis lifted the cloud of uncertainty hanging over US government bonds.
The end to the political impasse also saw the US dollar fall against a range of currencies, with the Australian dollar closing at a four-month high of US96.77¢.
Despite the recent strength of the dollar and forecasts of soft third-quarter CPI data, financial markets have continued to price in only a 10 per cent chance of another rate cut by the RBA at its November meeting.
Economists expect the headline inflation rate to lift to 0.8 per cent in the September quarter, with the underlying rate at 0.6 per cent.
The year-on-year headline rate was forecast to ease to 1.8 per cent, outside of the central bank's target band of 2 to 3 per cent, as the boosts from the carbon tax and health insurance rebate drop out.
The underlying inflation rate, which is more closely watched by the RBA, was estimated to reach 2.2 per cent.
"The inflation outlook remains quite benign," said Westpac senior economist Justin Smirk.
"While the disinflation impact of an appreciating currency is fading, so too is the boost from the carbon price."
Inflation is also expected to remain contained amid a soft labour market and continued weakness in consumer spending. Analysts said the rise in house prices was forecast to cause modest inflationary pressure.
The RBA was likely to monitor the impact of the dollar's 15 per cent slide between May and August on tradeables data, amid concerns the segment - comprising goods that have prices determined on the world markets - could record a shift from deflation to inflation.
"The large rise in tradeables prices reported in the New Zealand [third-quarter] CPI earlier this week highlights the risk," Commonwealth Bank chief economist Michael Blythe said.
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The Australian sharemarket is set to open higher, driven by expectations of a subdued third-quarter inflation reading. This could potentially bring the headline inflation rate below the Reserve Bank's target band for the first time in over a year.
The short-term resolution of the US budget and debt crisis has positively impacted global financial markets, lifting the uncertainty cloud over US government bonds and contributing to a positive market finish last week.
The Australian dollar recently closed at a four-month high against the US dollar. Despite this strength, financial markets are only pricing in a 10% chance of another rate cut by the Reserve Bank of Australia at its November meeting.
Economists expect the headline inflation rate to increase to 0.8% in the September quarter, with the underlying rate at 0.6%. The year-on-year headline rate is forecasted to ease to 1.8%, which is outside the central bank's target band of 2% to 3%.
The Reserve Bank of Australia is likely to view the current inflation outlook as benign. The underlying inflation rate, which is closely monitored by the RBA, is estimated to reach 2.2%.
The inflation outlook is influenced by a fading disinflation impact from an appreciating currency and the diminishing boost from the carbon price. Additionally, a soft labor market and weak consumer spending are expected to keep inflation contained.
The rise in house prices is forecasted to cause modest inflationary pressure, although overall inflation is expected to remain contained due to other economic factors.
The Reserve Bank of Australia is likely to monitor the impact of the Australian dollar's recent slide on tradeables data. There is concern that this segment, which includes goods with prices determined on world markets, could shift from deflation to inflation, as highlighted by recent data from New Zealand.
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