Asia week ahead: Inflation dominates the calendar in Asia - could free up some local policy easing

The Reserve Bank of Australia will meet to discuss policy interest rates on 24 September. As the minutes of the August meeting indicated that the RBA considered hiking rates at that time, any thoughts of rate cuts at this meeting can be swiftly banished. There has been some more moderation in inflation, but it has made no progress in net terms since the beginning of the year. However, labour conditions still look reasonably robust, so a no-change meeting is about the only plausible outcome. The statement tone may be a bit more positive about the outlook for reaching the inflation target over a reasonable timeframe.

August inflation data is also released in the coming week. This should show some further progress towards the RBA’s target range. We estimate that inflation will drop to 3.3%YoY from 3.5% in July, which will take it lower than it was at the end of 2023 for the first time this year. A decent chunk of this is going to come from much lower retail gasoline prices that reflect lower crude oil prices. Consequently, there is not likely to be as much progress on core measures of inflation and this could dampen any enthusiasm that follows a headline rate closer to the RBA’s 2-3% target range.

Surveys should show further deterioration in sentiment. The consumer sentiment index should drop below 100 due to tight macro-prudential measures on mortgages and the poor performance of asset markets. Meanwhile, business sentiment is also likely to weaken due to rising policy uncertainty ahead of the Fed decision and heightened political uncertainty surrounding the US election.

The flash PMI should advance to 53 with both the manufacturing and service PMIs rising on the back of the normalization of car production and solid wage growth. Meanwhile, Tokyo's CPI inflation is likely to ease in September mainly due to the resumption of utility subsidies.  

August inflation will likely show some further progress taking it closer to 2%, and on some estimates, it may even come in under 2%. This is an important release given that the activity backdrop remains fairly weak and so anything that provides some room for the MAS to adjust their monetary policy stance at their scheduled October meeting would be helpful.

Singapore’s industrial production figures for August are also due out and will likely track the recent non-oil domestic exports figures, which pulled back after a strong July. Still, the August 2023 figures were very weak, so we still expect the year-on-year rate of industrial production to accelerate, albeit not for very compelling reasons.