Australia's big four pencil trimmed mean at 1.0%, above RBA's 0.8% call

Front-end yields and the Australian dollar are positioned for a stark either/or response. With market pricing for a hike sitting at better than even odds, a trimmed mean of 1.0% or more would bring November rate expectations close to a full repricing and give the currency a lift. A figure of 0.9% or less, by contrast, might erase that pricing in a hurry. Oil remains the key to the headline: the surge at the pump is tied to the global energy shock stemming from the Iran conflict, and further crude strength would keep headline inflation high through the rest of the year. For the RBA, the services gauge carries the most weight, because broad-based price pressure would weaken the case that this is only an imported energy shock. The data lands on the same day RBA officials appear before Senate Estimates, which raises the stakes further.

---

Earlier:

• RBA is talking more but promising nothing: Westpac’s Ellis says read the data calls

---

Australia's core inflation is on track to exceed the RBA's forecast for yet another quarter, and with the banks evenly split, Wednesday's release could settle whether the Board raises rates on Melbourne Cup Day.

Summary:

• The September-quarter CPI for Australia will be published at 00:30 GMT on Wednesday, or 20:30 US Eastern time on Tuesday.
• Quarterly trimmed mean inflation is pencilled at 0.9% to 1.0% by the big four, higher than the RBA's 0.8% call, while headline is seen at 1.2% to 1.3% quarter-on-quarter and 3.9% year-on-year.
• CBA projects a roughly 10% jump in fuel prices over September, lifting annual fuel inflation to about 24%, and sees market services inflation climbing to 4.3%.
• With four rate increases already delivered this year, the cash rate stands at 4.60%; the RBA's next decision falls on November 3.
• A November increase is the base case at ANZ and Westpac, whereas CBA and NAB look for rates to stay on hold; CBA warns the risk of another move is building.
• Following Deputy Governor Hauser's remark that the inflation outlook was materially worse than forecast, market-implied odds of a hike moved above 50%.

Wednesday's release of Australia's September-quarter CPI, scheduled for 00:30 GMT (20:30 US Eastern on Tuesday), is likely to reveal underlying price pressures running considerably beyond the RBA's estimates, intensifying the question of whether the central bank raises again on November 3. Across the big four, the trimmed mean — the RBA's favoured core gauge — is expected to climb by about 1.0% in the quarter, against the RBA's August outlook of 0.8%.

The banks' projections sit in a tight range. On the quarterly trimmed mean, only Westpac sits under 1.0%, and NAB runs a touch below the rest on headline inflation.

Petrol is the biggest force in the headline figure. After a near-15% advance in August, CBA sees fuel prices up about 10% in September, pushing annual fuel inflation to close to 24% as the global energy shock reaches the pump. Based on the monthly gauge, CBA expects annual headline inflation to move up to 4.2% in September, from 4.0% in August, while the annual trimmed mean stays at 3.6%. Services may be the more telling indicator for policymakers, with CBA foreseeing annual market services inflation rising to 4.3% from 4.1% — evidence that higher prices are spreading beyond energy.

The RBA has delivered four hikes so far this year, the latest a 25-basis-point increase in September that took the cash rate to 4.60%. After Deputy Governor Andrew Hauser described the inflation outlook as materially worse than the RBA's August projection, the implied chance of a November hike jumped from about a quarter to above half.

The big four part ways on the RBA's next step. ANZ and Westpac treat a November increase as their baseline, and ANZ argues that a trimmed mean reading of 1.0% would back that position. CBA and NAB, meanwhile, expect the central bank to stay put, although CBA calls the decision a close call and sees an increasing chance of another rise, citing softer activity, a weaker labour market and weak consumption as offsets.

If the trimmed mean comes in at 1.0% or higher, the argument for consecutive rate rises would gain force; a result nearer to the RBA's 0.8% would leave the Board room to hold off.