Australia's Week Ahead: Major Elements To Watch

TALKING POINTS: INFLATION DATA – BUILDING APPROVALS

Inflation and building approval 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 is released quarterly and not on a monthly basis, which makes investors usually delay in tracking Australian inflation. Despite this, the release of the data is a strong market-mover event because it describes the inflation status for the whole quarter.

The Australian CPI is expected to decrease in the second quarter by about 1.5% to 2% from the 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, as China is a major Australian trade partner.

Moreover, the Australian government fiscal policy, mainly through its job-keeper and job-seeker programs, has helped sustain consumption demand and inflation.

BUILDING APPROVALS

Australian building approvals are in a downslide since late 2017, and are expected to weaken further in June, but unlikely to weaken to the same extent as seen in May. We expect to see a further drop, but at a slower pace. The 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 the April bottom and decreasing at a slower pace.

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