BoJ's Potential Shift in Monetary Policy – Is it time to Short USDJPY?

In January, the monthly Consumer Price Index (CPI) in Australia experienced a decline of -0.33% compared to the previous month, resulting in a year-on-year growth rate of +3.40%. This performance was slightly below both our and consensus expectations (GSe: -0.27% month-on-month, +3.45% year-on-year; Bloomberg consensus: +3.6% year-on-year).

Australia CPI MoM 

 Source: Finlogix CalendarThe specific details of the data were also marginally softer than anticipated. Core inflation, which excludes volatile items and holiday travel, remained flat at 0.0% month-on-month, and the year-ended rate eased by -9 basis points to 4.13% year-on-year (GSe: +0.10% month-on-month, 4.24% year-on-year). This aligns broadly with our projections, with services prices decreasing by -0.59% month-on-month, driven by a seasonal decline in travel prices, and goods prices falling by -0.16% month-on-month, reflecting an ongoing easing in durable goods.

From the perspective of the Reserve Bank of Australia (RBA), the continuous reduction in sequential inflation pressures is likely viewed as positive, especially as the 3-month annualized core inflation is now tracking below 3% for the first time since 2021. However, it's crucial to note that several services items were imputed to be 0.0% month-on-month in January, as they are not measured in the first month of the quarter. Updates on these items are expected in February's data.

Key figures for January include a monthly headline CPI of -0.33% month-on-month and +3.40% year-on-year, which is slightly below the expected figures. The monthly Core CPI (excluding volatile items and holiday travel) recorded +0.0% month-on-month and +4.13% year-on-year, also falling slightly short of expectations.

To summarize further:

Australia's monthly CPI for January decreased by -0.33% month-on-month, partially reversing the previous month's +0.66% month-on-month increase. The annual rate increased by +2 basis points to +3.40% year-on-year, slightly below expectations.The monthly core measure, excluding volatile items and travel prices, showed a +0.0% month-on-month increase, with the annual rate decreasing by -9 basis points to +4.13% year-on-year, also below expectations.Compositionally, services prices fell by -0.59% month-on-month, with stable growth in rents offset by a decline in recreation & culture prices, driven by a seasonal drop in holiday travel & accommodation.Prices for goods fell by -0.16% month-on-month, with varied impacts across categories such as food, new dwellings, fuel, clothing & footwear, household furnishings, equipment & services, electricity, and gas.Updated weights for Australia's CPI basket in January revealed an increase in the relative size of transport and recreation & culture, reflecting evolving spending patterns post-COVID. These weights will apply to quarterly CPI data from 1Q2024. Additionally, various items not surveyed every month are imputed to be 0.0%, with updates expected in February's data for education, restaurant meals, hairdressing & household services, vehicle maintenance, recreational services, and insurance.Insights Inspired by Goldman Sachs: Credit to Their Analysis for Shaping the Aspects of This Text.

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