Talking points : – Inflation data – Building approvals

Inflation and building approvals data releases are the major events in the economic calendar for the coming week in Australia.

Australia CPI:

 Unlike most G10 countries, Australia inflation data are released quarterly and not on a monthly basis, which makes investors usually in a lag in tracking Australian inflation.

However, it is a strong market mover event, because it describes the inflation status for the whole quarter.

The Australian CPI is expected decrease in the second quarter by about 1.5% to 2% from previous quarter.

The expected decline is broadly due to the shock in commodity prices early in the quarter, as mentioned below in crude oil and the Thomson Reuters CRB index.    

However, the Australian inflation is still backed by soaring prices of precious metals (GOLD and SILVER), the early decline in the Aussie Dollar, and the strong recovery -at least on paper- of the Chinese economy – major Australian trade partner.

Moreover, the Australian government fiscal policy, mainly through its jobkeeper and jobseeker programs has helped sustain consumption demand and inflation.

 Building approvals:

Australian building approvals are in a downside since late 2017, and is expected to weaken further in June but unlikely to weaken to the same extent as in May. On balance we expect a further drop but at a slower pace. Coming months will also see some additional support from the Government’s HomeBuilder grant.

Looking at the AIG construction index as a leading indicator for construction and housing activity, we see that the index is still in the contraction zone bellow 50 but recovering from April bottom and decreasing at a slower pace.