The Monthly CPI indicator rose 6.8% in the year to February, compared with the Westpac forecast of 7.4% year-on-year and the market forecast of 7.2% year-on-year. This represents a significant downside risk to our March forecast CPI forecast of 1.5% per quarter.

Specifically, the index rose only 0.2% in February versus our forecast of 0.8%; we believe the market median would have been about 0.6% given the 7.2% annual forecast. Compared with the average monthly increase of 0.9%mth in the last three months of 2022, the first two prints of 2023 represent a significant slowdown in inflation: -0.4% in January and 0.2% in February.

The monthly CPI indicator can fluctuate widely from month to month, as it is not a true monthly index, but rather the publication of data from the quarterly CPI, as they become available. This volatility is due to the timing of the various price surveys. This could be the reason why ABS reports the annual growth rate and not the monthly change.

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