Australia's macro picture broken down into two HOT topics – Westpac

Analysts at Westpac broke down the Australian related macro picture into two hot topics.

Key Quotes:

“Our first Hot Topic is Australian consumer inflation. Annual headline CPI has lifted, up from the low of mid–2016, returning to the bottom of the RBA’s 2–3% target band. We expect a significant bump in electricity prices will be sufficient to keep headline inflation in or at the bottom of the band in 2017 and 2018. 

However, core inflation while up from its low remains soft and a little below 2%. We generate our own estimates of core inflation for each of the capital cities, trends which suggest that the disinflationary pressures from the deflating of the mining investment boom are fading. This is another indicator suggesting that core inflation is likely to drift higher this year, to be at the bottom of the target band early in 2018.”

“Our second Hot Topic is the Australian Federal Budget, which was delivered on May 9. The Government’s forecast profile for the budget balance remains broadly as unchanged from the MYEFO report last December. 

The budget position improves from a deficit of 2.1% of GDP in the 2016/17 financial year to a small surplus of 0.4% of GDP in 2020/21. The closing of the deficit is expected to be achieved by a rising revenue take, a prospect supported in the 2017 Budget by two new revenue initiatives. Net debt levels remain manageable. Risks to the fiscal projections are twofold: the economic forecasts may prove to be overly optimistic and the revenue take could remain stuck around current levels, as has been the tendency post the GFC."