Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.

The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.

The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.

Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.

The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" />

SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.

“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.

The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.

“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" />

The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.

Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.

The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.

COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" />

“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.

The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.

The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.

Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a>

Joel Robinson

First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> has revealed plans for a new mixed-use tower at 10 Dangar Street, Wickham, advancing a proposal that would reshape the southern gateway to Newcastle’s city centre with one of the city’s tallest residential buildings.

The State Significant Development proposal, now on exhibition, seeks approval for a <a href="https://www.apartments.com.au/new-apartments/bowline-10-dangar-street-wickham-nsw-2293">43-storey tower</a> immediately adjacent to the Newcastle Interchange. The project would deliver around 200 apartments, including 42 affordable housing dwellings, alongside 99 co-living units, a 171-room hotel, retail space, and new public domain integrated through the site.

The scheme marks a significant escalation of plans previously approved for the site. Urban Property Group took over the prominent 2,904 sqm parcel, where excavation and demolition had already commenced under an earlier consent for a 14-storey mixed-use development.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="58a96dd9-407f-4d20-86b4-94e4bfeef74b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20podium.png?VersionId=LGlf08pdFGAZDzvx_CXC4XakHNZRuEE0" />

Designed by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, the tower has been conceived as a landmark transit-oriented development anchored to the Newcastle Interchange precinct. The proposal includes 245 build-to-sell apartments across a mix of one, two, and three-bedroom residences, as well as two penthouses. Fifteen apartments and one operational unit are earmarked for NDIS housing. The co-living component would add a further 99 units, while the podium would accommodate retail uses and hotel facilities.

SJB said the site presents “a valuable opportunity to anchor the precinct by setting the standard for design, active ground planes and character at the key southern gateway.”

The architecture responds directly to the site’s position beside major transport infrastructure and within one of Newcastle’s fastest-evolving urban renewal precincts. The tower form sits above a sculpted podium designed to frame new public spaces, including a through-site pedestrian link connecting Station Street to Hannell Street, landscaped plazas, and activated retail edges.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="a7bd6ff0-f7db-4ce8-a6dc-ea56e72c6149" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20lanne.png?VersionId=xzf39VADyhj7zBQY2I9fx9vI62u2tuSb" />

The design report describes the project as part of the broader transition of Wickham into “a vibrant, high-quality mixed-use urban precinct” that leverages proximity to the station, open space, and regional connectivity.

A detailed public art strategy has also been prepared for the development. The strategy positions the project as “a transit-oriented development of state significance at the gateway to Newcastle’s city centre” and outlines a series of integrated artworks responding to Newcastle’s industrial and transport heritage.

Creative Road’s curatorial framework for the project, titled Unveil, draws on “stratified surfaces, carved volumes, and light-filled apertures” while referencing Newcastle’s transformation from an industrial city into a contemporary education and technology hub.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="77a882bb-14b1-4d28-99ff-9438e39508c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20site.png?VersionId=cevgo_vN0eKPK78P8YcEu3mKPLkpFqE7" />

The proposal is being advanced through the NSW Housing Delivery Authority pathway after being declared State Significant Development in June 2025. The accompanying scoping report states the development aims to “maximise the site’s proximity to the Newcastle Interchange by delivering transit-oriented development” while increasing housing supply and affordable housing provision within the Newcastle LGA.

Urban Property Group’s plans align with the long-term strategic vision established under the Wickham Master Plan, which identified the interchange precinct as suitable for substantial uplift in height and density. The current proposal would significantly intensify that vision, positioning the tower among the tallest developments proposed for Newcastle.

The site sits immediately north of the Newcastle Interchange, bounded by Dangar Street, Hannell Street, and Charles Street. It is surrounded by a rapidly growing cluster of residential towers and mixed-use projects that have emerged following the completion of the light rail and transport interchange.

First look: Urban Property Group unveils Newcastle’s latest tower at Wickham interchange

Bottega House has completed settlement of a landmark riverfront site in Macquarie Street, St Lucia, representing its first major Brisbane development.&nbsp;

Positioned on the banks of the Brisbane River, the <a href="https://www.apartments.com.au/new-apartments/180-macquarie-street-st-lucia-qld-4067">premium site at 180 Macquarie Street</a> features uninterrupted river frontage in one of Brisbane’s most tightly held residential precincts.&nbsp;

The proposed development, currently under assessment with Brisbane City Council, has been designed by <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and will deliver a boutique collection of premium residences positioned specifically for owner occupiers and downsizers.&nbsp;

The residences are set to redefine luxury apartment living in the area, with a focus on architectural quality, refined finishes, landscape integration and elevated amenities including curated wellness facilities, resort-style pools and recreation spaces rarely seen in the local market.&nbsp;

Exclusive sales for the project will be led by Keenan &amp; Byrne, ahead of an anticipated launch later this year.&nbsp;

Bottega House Managing Director Nick Malloch said the project reflects the group’s ambition to deliver a highly curated residential offering within one of Brisbane’s most tightly held precincts.&nbsp;

“This is an incredibly rare riverfront opportunity and one we have approached with a long-term perspective,” Malloch said.&nbsp;

“Our vision from the outset was to create a boutique collection of residences that feel more like private homes than traditional apartments, with generous proportions, refined finishes and exceptional amenity throughout."

Malloch says there is a&nbsp;lack of premium owner-occupier stock of this quality in the market, particularly for downsizers wanting space, privacy and a true lifestyle offering without compromise.&nbsp;

"Demand is expected to be strong given the scarcity of premium riverfront opportunities of this nature within Brisbane’s inner-west."&nbsp;

Bottega House secures landmark riverfront site in St Lucia 

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The arrival of the first piling rig officially marks the commencement of construction at SIERA’s new beachside apartment development, Exhale, in Northcliffe.

<a href="https://www.apartments.com.au/new-apartments/exhale-surfers-paradise-8-enderley-avenue-surfers-paradise-qld-4217">Exhale</a>, a glass-encased tower featuring 54 large-scale apartments at 8 Enderley Avenue, is SIERA’s third Gold Coast development. It follows the recently completed PIPIS Bilinga beachfront project, which achieved suburb-record prices, and the soon-to-be-completed Chevron Island development, Tapestry.

[smartcode_project:default project_id=112661 project_image_fid=359603]

<a href="https://www.apartments.com.au/developers/siera">SIERA</a> Founder and Managing Director Brent Thompson said the arrival of the piling rig represented a significant milestone for the development, which is scheduled for completion in late 2028.

Over the next month, around 260 piles are expected to be installed as work progresses on the basement structure. The building is anticipated to rise above ground level early next year, before unveiling its sculptural glass curtain wall, developed in collaboration with specialist façade engineers.

“The façade was designed to maximise panoramic coastal views while creating a distinctive architectural identity,” Thompson said.

[smartcode_project:default project_id=112661 project_image_fid=355935]

Designed by BDA Architecture, Exhale will comprise just 54 two- and three-bedroom residences across 26 levels, a level of low-density living rarely delivered in this beachside pocket between Surfers Paradise and Broadbeach.

The project has been conceived as a resident-only building, with no short-stay accommodation permitted. SIERA says the model is intended to appeal to long-term owner-occupiers rather than transient holiday demand.

[smartcode_project:default project_id=112661 project_image_fid=361052]

Residences have been designed with large-format layouts and expansive glazing, with most apartments featuring more than 30 metres of glass frontage to maximise natural light and ocean views.

The amenity offering spans two levels and centres on wellness and lifestyle, including a heated magnesium pool, sauna, yoga and Pilates studio, gymnasium, private dining facilities, cinema lounge, and dedicated surfcraft storage.

[smartcode_project:default project_id=112661 project_image_fid=359607]

More than half of the apartments have already sold. SIERA has also opened a sales gallery for Exhale at its Chevron Island commercial premises, near its Tapestry tower and the site of its second Chevron Island apartment development, which is slated to launch in early 2027.
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[smartcode_project_cta:default project_id=112661]

SIERA kicks off construction at Northcliffe tower Exhale

Local Little Bay residents, along with buyers from premium postcodes across Sydney’s affluent Eastern Suburbs, have dominated purchases in developer-builder Urban Property Group’s first Eastern Suburbs apartment development, <a href="https://www.apartments.com.au/new-apartments/este-little-bay-jennifer-street-little-bay-nsw-2036">ESTE Little Bay</a>.

The $250 million coastal project, one of the first new developments in the area in several years, has proven particularly popular with downsizers, especially those from Coogee and Bondi. One Double Bay downsizer paid $4.7 million for a four-bedroom penthouse, setting a new local apartment price record in the process.

Buyers have been attracted to the combination of coastal tranquillity, premium design and amenity-rich neighbourhood living. The walkable village setting, along with proximity to three of Sydney’s leading golf courses, New South Wales Golf Club, St Michael’s Golf Club and The Coast Golf Club, has also been a key drawcard.

[smartcode_project:default project_id=112343 project_image_fid=352689]

Built across two low-rise buildings designed by <a href="https://www.apartments.com.au/architects/hill-thalis-architecture-urban-projects-pty-ltd">Hill Thalis</a> and set along a lush, landscaped green spine, designed by leading landscape architect <a href="https://www.apartments.com.au/landscape-architect/arcadia-landscape-architecture">Arcadia</a>, ESTE Little Bay offers a collection of one, two, three and four-bedroom residences with interiors by Richards Stanisich.

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> Sales Director, Tom McIvor said the response to ESTE has been "nothing short of extraordinary."

“Buyers have been quick to recognise ESTE as a rare opportunity to invest in a coastal sanctuary that offers both seclusion and connectivity to the heart of Sydney,” McIvor said.

[smartcode_project:default project_id=112343 project_image_fid=352687]

<a href="https://www.apartments.com.au/project-marketer/srm-residential">SRM Residential</a> Senior Director, <a href="https://www.apartments.com.au/project-marketer/srm-residential">Clayton Ross</a> said the local market has responded incredibly well, driven by ESTE’s exceptional location and the rarity it offers.

“We’ve seen strong interest from a variety of buyer groups, all of whom are drawn to the exclusivity and quality of the build and construction by the 4.5-star iCIRT-rated builder / developer, Urban Property Group. There’s truly nothing else like it along Sydney’s coastline.”

[smartcode_project:default project_id=112343 project_image_fid=352690]

The project also includes robust buyer protections, including Resilience Insurance’s Latent Defects Insurance, providing 10 years of structural cover, and an independent iCIRT-rating of the developer.

“The iCIRT-rating adds another layer of confidence,” Ross added. “Buyers see it as a safeguard for their investment and their lifestyle.” A highlight of ESTE’s offering is its exclusive wellness amenities, including a heated rooftop infinity pool and outdoor heated spa, a state-of-the-art Technogym fitness centre, and a sauna.

<a href="https://www.apartments.com.au/new-apartments/este-little-bay-jennifer-street-little-bay-nsw-2036">ESTE Little Bay</a> is topped out and is on track to complete towards the end of 2026, with residents moving in before Christmas.

[smartcode_project_cta:default project_id=112343]

Eastern Suburbs buyers snap up ESTE Little Bay apartments

Inflation

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GUEST OBSERVER
Today’s extraordinarily low annual headline and underlying inflation rates reflect not only lower petrol prices but widespread price discounting by retailers. Six of the eleven CPI categories had price falls in the quarter.
The QI CPI fell by 0.2 percent, sharply lower than the market expectation which centred on a rise of 0.2 percent (CBA (f) 0.3%). The AUD fell about US1 cent and interest rate futures are now pricing in a 55 percent chance of an RBA rate cut next Tuesday. While the headline inflation rate in annual terms is low, at 1.3 percent, it is the underlying inflation rate which is the big issue. It is running at 1.5 percent, the lowest rate on record. 
The 10% fall in petrol prices was largely expected. But the big expenditure categories also surprised with low results. Food prices (fruit, dairy, cakes and cereals) fell by 0.2% in the March quarter to be unchanged over the past year. It most probably reflects the competitive pressures between the big supermarkets and the new entrants. Housing costs, the largest expenditure category, rose by only 0.3 percent to be just 1.7 percent higher over the year. Even the highly regulated sectors, health and education, had relatively low QI rises (for them) of 1.9 percent and 3.1 percent. 
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The lower AUD over the past year has not, so far, produced the usual higher imported consumer goods and services prices. Tradables inflation fell by 1.4 percent in QI, reflecting the falls in petrol, furnishings, clothing, audio-visual equipment and international holiday travel. 
We are reviewing our RBA rate call in light of the lower than expected inflation trends. Clearly the chances of a rate cut next week have moved a lot higher. But today’s numbers may still not “demand” a rate cut. 
The RBA has tolerated below target inflation on a number of occasions. It is after all how the inflation targeting regime is supposed to work. The last time we saw inflation rates around the current figures was in 1997-98. Back then there were 6 out of 7 quarters where underlying inflation was below target. For most of that period the RBA left the cash rate at 5 percent.
There was a one-off 25bpt cut at the very end of 1998 (after 6 quarters of below target inflation). That cut was justified more on a deteriorating global outlook rather than low inflation. When thinking about what today’s CPI outcome will mean for RBA forecasts it is worth remembering that the Q4 GDP numbers were noticeably stronger than the RBA was expecting (2.5 percent expected versus 3 percent actual). Higher GDP and a lower unemployment rate, now 5.7 percent, mean the “if needed” components for a rate cut are not quite as pressing. With the release of today’s Australian CPI our replica of the RBA’s model suggests the Australian real TWI is less overvalued than previously estimated. In fact, the Australian real TWI is just inside the fair value band (+/- one standard deviation).
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<img src="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%203.02.05%20PM.png" alt=""> 
The detail 
As anticipated, the volatile items had a major impact on the much lower than expected headline CPI outcome of a 0.2 percent fall. The QI CPI (excluding volatile items) rose by 0.2 percent (to be up 1.7 percent on a year ago). In other words, the volatile items sliced 0.4 percent from the headline QI CPI. 
Leading the volatiles deflationary impact were petrol prices which dived by 10 percent over QI, to be 6.4 percent lower over the year. The QI petrol prices drop sliced 0.31ppts from the QI CPI outcome. The other key volatile item, namely fruit and vegetable prices sliced 0.11pts from the headline QI CPI. The key driver was an 11.1percent drop in fruit prices (down 6.9 percent pa) which made a 0.13ppt negative contribution to headline inflation. This impact was partially offset by a 1.5 percent rise in vegetable prices in QI (but which were down 4.3 percent in annual terms). 
These volatile items account for most of the gap between underlying and headline inflation forecasts. 
Price falls 
Six of the eleven components of the headline CPI registered price falls in QI. As mentioned above and as expected, the sharp decline in automotive fuel prices was the most prominent factor deflating the quarterly headline CPI result. 
Other CPI items weighing down on the headline outcome were clothing and footwear prices which dropped by 2.6 percent in QI and made a negative 0.1ppt contribution. The main contributor to the decline in this component was accessories prices which declined by 4.3 percent in QI. 
The other CPI categories posting falls in QI were the recreation and culture group, (-1.0 percent), the communications group (-1.5 percent), and furnishings household equipment and services (-0.4 percent). The main contributors to the fall in the recreation and culture group prices were international holiday travel and accommodation (-2.0 percent) and domestic holiday travel and accommodation (-1.9 percent). 
Elsewhere, a 1.7 percent drop in telecommunications equipment and services was the key driver of the 1.5 percent fall in communications group prices. Meanwhile, a 4.1 percent fall in household textiles prices and a 1.6 percent decline in furniture prices contributed to the 0.4 percent decrease in furnishings and household equipment and services prices. 
Price rises 
The largest offsetting price rises in QI were secondary education (+4.6percent), medical and hospital services (+1.6percent) and pharmaceutical products prices (+ 4.8percent). These outcomes are largely due to seasonal factors but were smaller than usual. Overall, these health and education groups contributed 0.2ppts to the QI CPI. 
Also contributing in a positive way to the quarterly headline CPI outcome were increases in household fuels (+3.0percent) and new dwelling purchasing by owner occupiers (+0.2percent) suggesting housing activity may well be cooling but it certainly isn’t crashing. 
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Imported or “tradables” inflation 
Tradables prices fell by 1.4percent in QI and were up by a modest 0.6percent over the year to March. The quarterly fall in tradables prices was due to a combination of the higher AUD in QI, falling fuel prices, and falling international holiday travel and accommodation prices. Tradable prices make up 40percent of the CPI basket and are a reflection of imported prices. 
Domestic or “non-tradables” inflation 
Domestic inflation or non-tradables inflation rose by a modest 0.4percent over QI and lifted by a tame 1.7percent on a year ago. This category accounts for around 60percent of the total CPI basket. The most significant contributors to the QI rise in non-tradables inflation were increases in gas and other household fuels and beer prices. Also, the non tradables services of secondary education and medical and hospital services prices helped the quarterly rise in this component. The key offsetting declines in 
non tradables inflation were electricity prices and domestic holiday and accommodation and telecommunication equipment prices. 
Plenty of spare capacity in the economy and softer wages growth has helped cap non-tradables inflation in recent quarters. 
States 
It is very unusual to see uniformly low inflation across all the capital cities. Prices rose in Canberra by 0.2percent in QI, were flat in Brisbane and fell in the other capitals. 
The price falls were in Sydney, -0.2percent, Melbourne -0.1percent, Adelaide -0.3percent, Perth -0.6percent, Hobart -0.2percent and Darwin -0.9percent. Perth and Darwin had the largest QI price falls. 
In annual terms, inflation was running highest in Melbourne and Brisbane at 1.7percent, then 1.3percent in Sydney and Hobart, 1.0percent in Canberra, 0.7percent in Perth and Adelaide, and -0.3percent in Darwin. 
The capital cities with the weakest retail activity, like Perth, Adelaide and Darwin have the weakest inflation outcomes, indicating the widespread retail discounting pressure. But there are other issues underway. Perth’s residential rents have fallen 4.4percent over the past year. 
Wages trends and inflation 
Wages trends provide a major input to structural inflation in the Australian economy. The trend around private sector wages over the past few years is towards consistently lower than expected outcomes. There are also clear compressions in wages outcomes across industry sectors and regions which are relatively new phenomenon and have been a feature of the post-mining investment and construction boom landscape. 
Annual private sector wages growth was running at a paltry 2percent in the year to December 2015, the weakest growth rate since the series began in 1997, and well below the 3percent to 4percent annual growth that has been the norm from the late 1990s until after the mining boom started to dissipate. Ongoing spare capacity in the labour market and job security anxieties are likely to continue to cap wages growth by workers limiting wage claims. 
Nationally, QIV wages growth continued to track lower in a range of industries and all industries have experienced wages growth well below their decade averages. On an industry basis across all sectors (i.e. public and private) the strongest annual wages growth was posted in financial and insurance services at 2.8percentpa, and weakest in mining at 1.5percentpa. 
The industry sector wages outcomes show that about 80 percent of industries are paying less than 2.5percent wage increases and the remaining 20percent are between 2.5percent and 3.0percent. The regional trends are also similar, with a trend towards State wage growth below 2.5percent. WA, the State with the highest wages growth for the decade up to 2013, now has growth of just 2percent. The end of the mining boom is having similar effects on wages trends in Queensland and NT. 
The sectors with the strongest jobs growth over the past few years are health, accommodation, cafes and retail. They also tend to be ones where part-time employment is significantly higher than in other sectors. The sectors with mainly full-time employment, like mining, utilities and construction, are losing jobs. So the pressures in the labour market that favour more part-time employment are producing a period of distinctly lower wages outcomes. 
A key reason behind ongoing tepid wages growth recently could be that a much more flexible labour market in recent years has enabled companies’ greater capacity to cap wages growth in a lacklustre labour market. In a period of labour market slack employees tend to be more satisfied to accept lower wages growth in return for more job security. 
The resultant ongoing tame wages growth seems to have contributed to more jobs growth than normally would have been the case. Indeed, the latest employment data showed annual jobs growth of 2.0percentpa. (I.e. +235.3k or an average +19.6k a month) in March. The unemployment rate stood at 5.7percent in March.
Ongoing soft wages growth and labour costs have helped wind back non-tradables (or domestic) inflation in recent quarters. This is especially the case for services inflation (with its very high labour component). Thus modest wages growth is a very handy tool in maintaining the current low inflation environment. 
Inflation expectations 
Central banks and policy makers care about inflation rates and where they may be headed. But they also care about the inflation expectations held by businesses and consumers. These expectations influence how economic agents act, with a flow on to economic activity. And these expectations influence the support or restraint that a given level of interest rates provides. 
The extended period of weak inflation in many countries has seen inflation expectations move lower. Some central banks have become concerned about the impact of low expectations. And certainly some recent policy easings in Europe, Japan and New Zealand reflect these concerns. Even in the US, where interest rates have been nudged higher, Fed Chair Yellen has recently expressed concerns about low inflation expectations. They are yet another reason for a caution approach to rate changes by the Fed. 
Our thoughts on global inflation expectation trends and what they mean for policy directions can be found here. 
The RBA monitors inflation expectations. But they are of less concern than for other central banks. They are rarely mentioned in post RBA meeting Statements. And comments are generally limited to a summary paragraph in the quarterly Statement on Monetary Policy (SMP). 
More importantly, inflation expectations in Australia are low but look well anchored. They have not been influenced by low headline inflation rates and the general lack of business pricing power. 
Policy makers are actually probably quite happy with aspects of the inflation expectations story. The decline in house price expectations as views on the housing market have softened will be seen as a desirable outcome. Especially given the concerns evident about rapid price growth and elevated expectations in 2015. The restraint in wage expectations is seen as a positive through the support it gives to labour demand.
Michael Workman is senior economist, <a href="https://www.commbank.com.au/corporate/research?ei=mv_research" target="_blank">Commonwealth Bank</a>.
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Low inflation raises the chances of an RBA rate cut next week: CBA's Michael Workman

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GUEST OBSERVER
<a name="x_OLE_LINK9" target="_blank" href=""></a>Inflation is pretty much non-existent. In fact in the March quarter the Australian economy essentially went through a period of deflation.
The economic environment in Australia is still far different from other parts of the globe, but when it comes to inflation central banks across that globe are facing the same concerns. The euro zone continues to worry about the deflationary threat from sluggish growth and sliding oil prices, while inflation remains below the Fed’s target rate in the US. And here in Australia inflation is holding below the Reserve Bank’s target 2-3 percent.
It is pretty clear that inflation is not a threat to the domestic economy, meaning that the Reserve Bank can comfortably keep interest rates at exceptionally low levels over the medium term. Domestic inflationary pressures remain well contained and given the slow growth in wages it is unlikely to result in a change to the domestic inflation landscape.
The headline inflation measure fell by 0.2 percent in the March quarter, and even more importantly some of the underlying measures were decidedly soft. The annual growth rates remain below the low end of the Reserve Bank’s 2-3 percent target band. The average of the three key underlying inflation measures lifted by 0.2 per cent in the quarter to be up 1.6 per cent over the year.
Looking across the contributors to inflation, the seasonal increases in education fees and medical services were amongst the key factors driving inflation higher. While the fuel price recorded a 10 per cent decline in the March quarter. Whichever way you cut it, inflation is not a threat to the economy. Interestingly the stronger Aussie dollar over the March quarter, seems to have had a significant impact on curtailing imported inflation. The tradeable component of the CPI result fell by 1.4 per cent in the March quarter.
While we don’t think there is a screaming need for interest rates to be cut on economic activity grounds, the low inflation result opens the door for the Reserve Bank to cut rates if they deem it is necessary. The question is whether the Reserve Bank believes that cutting interest rates will actually provide a boost to the economy given that interest rates are already at generational lows.
Interestingly if the Reserve Bank did not cut rates next week, the market could take that as a sign that it would take a drastic downturn in the domestic economy to cut rates and as such it would provide more impetus for the Australian dollar – an undesirable result. The bottom line is that underlying inflation is undershooting the 2-3 per cent target band and that suggests little risk in cutting rates a little further. CommSec believes there is a strong chance the Reserve Bank will cut the cash rate to a historical low of 1.75 per cent in May.
<a href="/images/2016/04/27/image003.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/27/image003.png" alt="">
What do the figures show?
CPI
The All Groups Consumer Price Index (CPI) fell by 0.2 per cent in the March quarter, well below expectations. In seasonally adjusted terms the CPI fell by 0.1 per cent. The annual rate of inflation fell from 1.7 per cent to 1.3 per cent.
Underlying measures of inflation were lower than forecasts in the March quarter. The trimmed mean rose by 0.2 per cent in the March quarter (1.7 per cent annual); the weighted median rose by 0.1 per cent (1.4 per cent annual) and the CPI less volatile items rose by 0.2 per cent (0.6 per cent annual). Overall, underlying inflation rose by 0.2 per cent in the quarter and by 1.6 per cent over the year (equal lowest growth in 33 years of records).
The Bureau of Statistics noted: “The most significant price falls this quarter are automotive fuel (-10.0%), fruit (-11.1%) and international holiday travel and accommodation (-2.0%). The most significant offsetting price rises this quarter are secondary education (+4.6%), medical and hospital services (+1.6%) and pharmaceutical products (+4.8%).”
Prices of tradables fell by 1.4 per cent in the March quarter, driven by lower prices for automotive fuel. The most significant offsetting rise in the tradable goods component was for pharmaceutical products. The tradables component rose by 0.8 per cent over the year to March.
Prices of non-tradables rose by 0.4 per cent in the March quarter. Price increases were recorded for secondary education, gas and other household fuels, and beer. The most significant offsetting fall was for electricity and domestic holiday travel and accommodation. Non-tradables prices rose by 1.7 per cent in the year to March. Tradable goods are those items whose prices are largely determined on the world market. Non-tradable prices are more affected by domestic economic conditions.
Why is the data important?
The Consumer Price Index (CPI) is regarded as Australia’s premier measure of inflation. The CPI is published quarterly and measures price changes for a ‘basket’ of goods and services that dominate expenditure of metropolitan households. The “All Groups” index is the main focus, but other inflation measures are also published such as so-called ‘underlying’ measures. These include measures that abstract from price changes in volatile price items such as fresh food and petrol.
The Reserve Bank aims to keep the headline inflation rate between 2-3 per cent over an economic cycle. If inflation is high and expected to rise, the Reserve Bank may elect to raise interest rates in order to constrain price pressures. Conversely, if inflation is low and expected to remain low, the Reserve Bank may elect to cut interest rates if it believes the growth pace of the economy is in need of strengthening.
What are the implications?
At present the national economy is tracking ok. Economic growth is healthy and more encouragingly unemployment is at a 2½-year low. However the concern for policymakers is that the deflationary environment becomes more firmly entrenched in coming quarters. A sustained super low inflation landscape will lead to low inflationary expectations over time and in turn a shift in asset allocation.
It seems there is a broader thematic playing out. The technology disruption and the ability to be able to buy goods whenever and wherever you want is adding to the already challenging environment for domestic businesses. Essentially making it hard to lift prices. The key for business in a low inflation environment is to lift productivity. 
CommSec believes there is a credible risk that the Reserve Bank cuts interest rates to 1.75 per cent next week.
The focus now shifts to the Federal Reserve (FOMC) meeting and rates decision (due out tomorrow morning) and the likely impact on the Australian dollar – particularly given the Fed has been more cautious in recent rhetoric d on the outlook for interest rate hikes.
Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>
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First fall in prices in seven years: CommSec's Savanth Sebastian

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GUEST OBSERVER
The minutes of the April monetary policy meeting of the Board of the RBA provided few surprises but some notable choices in wording and some elaboration on key themes in the Governor’s decision statement.
Recall that the minutes relate to a meeting on April 5 and pre-date more positive monthly data on jobs and surveyed business conditions but also a drop in consumer sentiment and a further rise in the AUD.
Our main points of interest are the discussion in the ‘Considerations for policy’ section and the additional detail on assessments of current conditions and prospects.
The minutes repeat the main points from the Governor’s decision statement, including the key line that “Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand”, a more upbeat assessment on the economy following the December quarter national accounts, commentary on the AUD that was more ‘factual’ than ‘critical’, and reduced concern about the potential impact of “financial turbulence” which was a more prominent issue in March.
The key new takeaways from the minutes are:
<ul>
<li>a clear assessment that the more positive tone on domestic activity was carrying into 2016;</li>
<li>slightly more stress being placed on the current degree of policy stimulus;</li>
<li>a bolstering of expectations that inflation will remain low;</li>
<li>and the critical channel of concern for the AUD rise being the impact on the services export sector. </li>
</ul>
Taking each of these point in turn:
The Governor’s statement had relatively little to say on Australian economic activity other than that the economy was continuing to rebalance and there were reasonable prospects for continued growth. The minutes flesh this out much more with key comments elevated to the ‘considerations’ section. 
The key line here is: “Domestically, the latest national accounts data suggested that the economy grew at a moderate pace in the December quarter and more recent data were consistent with this having continued in early 2016.” That compares to the comment in the March meeting minutes that “available data suggested that the domestic economy had continued to grow at a slightly below-trend pace”. It is somewhat interesting that the April minutes do not mention growth in relation to trend (on most measures it would be best described as near trend). However, the main point is really that this momentum is seen as having carried into 2016, a view that would have been reinforced by the March labour force survey and March business survey results.
The ‘considerations’ section included a notable tweak in wording on current policy settings, assessed as “very accommodative” rather than merely “accommodative” in the Governor’s statement. Although the meaning of this shift is open to interpretation, we would view putting more emphasis on the degree of stimulus as a subtle way of saying that the ‘hurdle’ for additional stimulus measures is higher. The shift in wording seems a little odd given the degree of attention paid to the wording in the Governor’s statement.
On inflation, the ‘considerations’ section emphasises the downside: “On all measures, wage growth remained at quite low levels and domestic cost pressures, more generally, remained subdued. Combined with the appreciation of the exchange rate and the low level of inflation globally, this suggested that inflation in Australia was likely to remain low over the next year or two.” This compares to the same section in the March minutes which simply noted “Wage growth had remained at quite low levels”. The commentary is pointing towards a likely lowering in the RBA’s inflation forecasts, something we have flagged as a possibility.
On the AUD, the key minutes repeated the concern that “an appreciating exchange rate could complicate progress in activity rebalancing towards non-mining sectors”. Two other comments provide an important elaboration on this: “Members noted that the recent rebound in commodity prices, even if sustained, was unlikely to lead to any material change in mining investment over the next couple of years”; and “Members observed that [the net services exports] component of GDP was one of the most sensitive to changes in the exchange rate and discussed the impact of exchange rate movements on the economy more broadly.” 
That suggests the key complicating factor from an AUD rise is that the degree of stimulus from an associated rise in the terms of trade for the mining sector may be limited and that the main source of weakness could be around services exports. That in turn suggests activity measures in the latter – confidence, conditions, employment – will be the critical test for whether the rise is becoming a factor (i.e. “could complicate” becoming “is complicating”). Clearly the RBA is greatly interested in the sectoral make-up of activity indicators in coming months.
Aside from these main points, the minutes seemed a little more positive on international conditions – China in particular where the pace of overall growth was described as having been broadly unchanged in the first two months of 2016 vs referring to “continued weakness in the industrial and real estate sectors” back in March – and financial markets which had improved, but were wary of the rally in Australia’s commodity prices.
Conclusion
The minutes provide some valuable insight into the Bank’s assessment of conditions domestically and the nature of the risks it is assessing, particularly around the recent gains in the AUD. Both continue to suggest the Bank is comfortable with current policy settings and although there are clearly risks around the outlook, particularly vis a vis the AUD, we are comfortable to retain our call that rates will remain on hold for the remainder of 2016, with the proviso that we do not envisage a further significant surge in the AUD.
We continue to see the Bank’s strategy on the AUD as hinging on whether 'new' levels of the currency are sufficient to markedly change its forecasts for inflation and, much more importantly, growth. The RBA will provide updated forecasts in its May Statement on Monetary Policy (due May 6). 
On growth we expect the stronger than expected Q4 national accounts to offset downward revisions from a higher currency, holding the RBA’s forecast steady at 3% – at most growth may be revised down 0.25ppts but even this would leave its 2016 forecast at ‘trend’. On inflation, the March quarter CPI (due April 27) is key input – our expectation of a 0.6 percent/qtr gain in the core CPI measure is also likely to limit any downgrade to the Bank’s forecasts with its 2016 view on underlying inflation likely to be pared back 0.25ppts to a range mid-point of 2.25 percent for 2016. Neither of these adjustments look like being substantive enough to trigger a policy response.
Matthew Hassan is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
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Possible lowering of RBA's inflation forecasts: Westpac's Matthew Hassan

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OPENING STATEMENT
Since the Committee's previous meeting in September, we have continued to see evidence that economic activity outside the resources sector has been gradually improving.
The pattern observed six months ago whereby business surveys were suggesting improving conditions by and large continued through to the end of the year.
Inevitably, this expansion is not uniform across the country or across industries. Areas that led the growth dynamic a few years ago are on the trailing edge now.
Conversely, some that were subdued for a few years are among those leading growth today.
But few, if any, expansions are completely even, either geographically or by industry.
Given the nature of the economic events through which we have been living, moreover, it is not surprising that there are differences.
The good thing is that there are strong areas to counteract the weak ones.
The available information suggests that real GDP is expanding at pace a bit lower than what we used to think of as normal.
Our estimate is that growth over the four quarters of 2015 was about 2½ per cent.
This continued expansion has occurred in the face of a very large contraction in capital spending in the mining sector, restrained public final spending and the reduction in national income coming from the declining terms of trade.
It has been helped by easy monetary policy and the lower exchange rate.
Notwithstanding below-average GDP growth, the demand for labour increased at an above average pace in 2015.
The number of people employed, as measured, increased by well over 2 per cent, participation in the labour force picked up and the rate of unemployment declined, to be below 6 per cent.
That is a noticeably better outcome than we expected a year ago.
This poses the obvious question of how, with apparently still somewhat below-trend GDP growth, the rate of unemployment has fallen. And whether the pattern will continue.
Of course, it may be that the labour force data overstate the strength.
Alternatively they may be telling us something not yet apparent in the GDP estimates. More data may shed light on this question over time.
Part of the reconciliation appears to be that growth has been concentrated somewhat in labour-intensive areas, like certain household and business services.
Another part of the reconciliation probably lies in the very modest pace of growth of labour costs.
At any given rate of unemployment, wages growth appears to have been lower than would have been expected based on historical relationships. In fact, at an economy-wide level, unit labour costs – that is, wages per unit of aggregate output – have not risen for four years. This has surely helped employment.
This same phenomenon is also important in understanding the behaviour of inflation, which has been quite low.
As measured by the Consumer Price Index, inflation was 1.7 per cent over 2015.
This was affected by falling prices for petrol and utilities, the latter in part due to government policy decisions.
But even the underlying measures, which remove or down‑weight such effects, at around 2 per cent, are low. Price rises for non-tradeable items are at their lowest for many years, and this reflects, among other things, the modest growth of labour costs.
In summary then, the economy is continuing to grow at a modest pace, in the face of considerable adjustment challenges. It has apparently been generating more employment growth and lower unemployment than we expected, while inflation has remained quite low.
Turning then to the rest of the world, there have been some key developments since we last met with the Committee.
In December, the United States Federal Reserve raised its policy interest rate for the first time in 9½ years.
The last time the Fed actually started an upward phase in rates was as far back as 2004.
The Fed's rationale for this change was that the US economy had sufficient strength that a zero interest rate was no longer needed – and, as such, it is a welcome development.
The change had been very well telegraphed and was absorbed by financial markets without any immediate disruption.
That said, US dollar funding costs are important to many financial strategies around the world and when they start to increase, however gradually, investors adjust their positions.
This had already been happening in anticipation of the Fed's decision, with funds seeking to lessen their exposures to emerging markets, high-yield debt instruments and so on.
These adjustments continued subsequent to the Fed announcement. For some emerging market economies, facing lower commodity export prices, things have become more challenging.
At the same time, some other major jurisdictions have sought to ease their monetary policies further.
Both the European Central Bank and the Bank of Japan have pushed rates on some deposits at the central bank below zero. In other words, policy trajectories among the major jurisdictions are diverging, which creates the potential for market movements, not least in exchange rates.
Meanwhile, the Chinese economy has become more of a concern for many observers.
It is not that the actual data on the Chinese economy are all that different from what we had been seeing.
They paint a picture of softness in growth – but they were already saying that some time ago.
The more recent anxiety is probably best described as greater uncertainty over the intentions of Chinese policymakers and over whether they will be able to carry off the economic transition China needs. This anxiety has been reflected in capital flows.
Commodity prices have generally fallen further over recent months. Most prominent was the further fall in crude oil prices to about US$30 per barrel.
While this level of oil prices is not especially low in a longer-run historical context, it is a large decline from prices prevailing in recent years and is bringing considerable adjustment.
Oil-producing companies and nations are seeing a decline in their incomes, and yields on debt issued by corporates in the energy sector have increased sharply.
Exploration expenditure and investment in new capacity is being rapidly curtailed.
Sovereign asset managers for some key oil producers are liquidating some assets to help manage the effects on fiscal positions.
As with most price changes, there are gainers as well as losers.
The fall in energy costs is a windfall to energy users and represents a terms of trade gain for countries that are net importers.
Importantly, it does not appear to be the case that the fall has predominantly been caused by weak demand for oil.
Indications are that oil demand has still been rising, albeit not as quickly as it had been.
Supply increases appear to have been more important than demand factors in explaining the large price fall, at least thus far. Hence, we should not interpret the decline in oil prices as uniformly negative.
On the contrary, a fall in oil prices resulting from additional supply has usually been seen clearly as a bonus for consumers and many businesses in advanced economies, including Australia.
In financial markets, as investors and traders have sought to make sense of all these conflicting currents, we have seen a period of volatility recently.
This has been apparent in equity and bond markets, as well as foreign exchange markets.
Equity markets are lower, yields for core sovereign obligations are lower, spreads for lower-rated corporates and emerging market sovereigns are wider.
Exchange rates have seen more variability, with currencies for many emerging market countries weaker.
The Australian dollar is around the same level now as when we last met with the Committee, though commodity prices are lower.
Looking ahead, forecasters expect a bit less growth in the global economy this year than they did a few months ago.
Expectations for Australia's trading partner group itself are for growth to be a bit below average, little changed from six months ago.
Inflationary pressures globally look quite subdued. Global interest rates will still be very low, even if short-term rates move up a bit further in the United States.
For Australia, the adjustment we have been experiencing for a couple of years now will most likely continue.
The terms of trade are still falling. The fall in mining investment spending will continue for at least one more year, though it is probably having its most significant effect on the rate of growth now.
Other areas of demand are expected to add to growth. The net effect of all this is likely to be continuing expansion at a moderate pace.
One key question will be whether the recent financial turbulence itself will have a material negative effect on aggregate demand – in Australia or abroad. I don't expect that we will be able to answer that question for a little while yet.
Another question is what the recent unexpected strength in the labour market means for the outlook.
If it turns out that the strength is just temporary, then the outlook is still for moderate growth, but no near-term acceleration.
If, on the other hand, recent trends were to continue, the income gains coming from higher employment may start to feed into stronger demand growth, which would probably lead in due course to higher levels of investment.
Alternatively, if demand growth were to be in areas that require relatively little capital to support the labour employed, then the apparent weakness in capital spending outside mining could be of less concern anyway.
As usual, there are many questions regarding both our current circumstances and the outlook.
At its recent meetings, the Reserve Bank Board has kept the stance of policy unchanged, with the cash rate at 2.0 per cent.
We will be examining new information over the months ahead as we try to discern the answers to these and other questions.
With inflation unlikely to cause a problem by being too high over the next year or two, the statement after the recent meeting indicated that the Board retains the flexibility to ease further, should that be helpful.
Glenn Stevens talked about Sydney and Melbourne prices in our next story here.
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Inflation unlikely to cause a problem: RBA governor Glenn Stevens opening statement

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The Australian Bureau of Statistics (ABS) released its quarterly Consumer Price Index (CPI) data for the December 2015 quarter.
The data showed that inflationary pressures remain very low with headline inflation rising 1.7% over the year and core inflation (underlying inflation) increasing by 2.0% over the past year, which is right at the lower end of the Reserve Bank’s (RBA) target range for inflation of 2% to 3%. Of course across most developed nations there are very few inflationary pressures currently despite record low interest rates.
As a follower of the residential housing market I always like to have a look at the impact of inflation on Australian capital city home values by adjusting the CoreLogic RP Data Home Value Index for the impact of inflation. 
As you’d expect with inflation so low it is having minimal impact however, over the longer term it has had an impact on the real increase in capital city home values.
<a href="/images/2016/01/29/Chart-1-2-580x209.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/29/Chart-1-2-580x209.jpg" alt="">
With nominal home values increasing by 7.8% in 2015 across the combined capitals, when adjusted for inflation growth is somewhat lower at 6.0% over the year.  In terms of the individual capital city performances the four cities which recorded nominal value increases have still seen values rise in real terms albeit the rate of growth is lower.  Alternatively, the cities which recorded value falls have seen larger value falls in real terms.
<a href="/images/2016/01/29/Chart-2-2-580x206.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/29/Chart-2-2-580x206.jpg" alt="">
The trends across the capital city housing markets have shifted substantially since the financial crisis after home values declined during 2008.  Since the financial crisis home value growth has surged in Sydney and Melbourne, while elsewhere the rate of value growth has generally been comparatively modest. 
The chart above shows nominal and real home value changes over the seven years from December 2008 to December 2015.  While Hobart was the only capital city to record a nominal value fall over that time, in real terms values are lower over the past seven years in Brisbane, Adelaide and Perth while they have barely moved in Darwin and Canberra.
<a href="/images/2016/01/29/Chart-3-1-580x210.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/29/Chart-3-1-580x210.jpg" alt="">
To further highlight the previous point, the above chart shows the change in real home values across each capital city since their previous cyclical peak.  Sydney and Melbourne are the only two capital cities in which home values are higher than their previous peak. 
After Sydney home values hit a previous peak in March 2004 they are currently 21.1%, in Melbourne home values peaked in September 2010 and are currently 6.5% higher.  Elsewhere home values are -11.0% lower than the March 2008 peak in Brisbane, -9.8% lower than their June 2010 peak in Adelaide, -13.5% lower than their September 2007 peak in Perth, -21.8%  lower than their December 2007 peak in Hobart, -19.3% lower than their September 2010 peak in Darwin, and -8.5% lower than their June 2010 peak in Canberra. 
Despite historic low mortgage rates over recent years, home value growth in real terms over recent years has been soft.
Of course most people don’t think about the ‘real’ growth in home values, we tend to operate in a nominal world.  We see the value of our assets rising and we are generally quite happy with that however, it is important to at times consider the impact of inflation and if our asset values are rising at a faster pace than prices more broadly.
The data shows that even with historic low mortgage rates, real home value growth has failed to show any substantial or sustainable pick-up outside of Sydney and Melbourne.
This suggests that other economic factors are impacting on demand for housing. Furthermore, the drivers of housing demand in Sydney and Melbourne are somewhat different to the rest of the country. Some suggestions as to what these factors are would be the rise in demand from overseas purchasers, greater demand due to better jobs growth and employment prospects as well as the fact that these cities already have more than 4 million people compared to our next largest city at around 2 million people.
The much higher population results in substantially more housing demand than elsewhere in the country.
 
Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/about/" target="_blank">here</a>.
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Sydney and Melbourne are the only capital cities with any significant increase after inflation: Cameron Kusher

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GUEST OBSERVER
Yesterday's Q4 CPI numbers showed the RBA's preferred measures of underlying inflation are at the bottom edge of the 2-3% target band. The trimmed mean was 2.1% y-o-y (market had 2.1%), while the weighted median was 1.9% y-o-y (market had 2.1%) and the average of the two was running at 2.0% y-o-y. These numbers were in line with the RBA's own forecast for Q4 from its November official statement.
Importantly, the RBA also remains more focused on the recent lift in jobs and activity indicators, so we expect them to be on hold next week. However, with inflation at the bottom edge of the target band and growth unlikely to be above trend this year, we think another cut is likely around mid-year (pencilled in for Q2).
Facts
The trimmed mean rose by 0.6% q-o-q in Q4 (market had 0.5%) and by 2.1% y-o-y (in line) while the weighted median was up 0.5% (in line) and 1.9% y-o-y (market had 2.1%). The CPI excluding 'volatile items' was up 2.1% y-o-y in Q4, which was unchanged from last quarter.
CPI inflation was 0.4% q-o-q and 1.7% y-o-y (market expected 1.6%).
Tradable inflation was 0.5% q-o-q and 0.8% y-o-y (up from -0.3% previously). Non-tradable inflation was 0.4% q-o-q and 2.3% y-o-y (down from 2.6% previously).
The largest positive contributions to inflation in the quarter were from alcohol and tobacco (up 2.7% q-o-q, driven by an increase in tobacco excise) and recreation and culture (up 1.6% q-o-q, driven by higher prices for domestic and international holidays).
The largest negative contributors in the quarter were transport (-1.4% q-o-q due to lower petrol prices) and communications (-2.4% q-o-q due to falling prices for telecommunication equipment and services).
Implications
Underlying inflation this low is usually a recipe for an RBA cash rate cut. But not this time: or at least not yet. Late last year, the RBA Governor, Glenn Stevens, made it clear that the RBA was prepared to be more tolerant of low inflation, for a number of reasons, including: that low inflation is a global force, so the RBA may not be able to do much about it; that the RBA already has its cash rate at a record low of 2.00%; and, that the RBA sees risks to financial stability if it cuts further and were to drive an additional lift in housing prices.
Importantly, for the moment, the RBA can afford to tolerate low inflation because the jobs and activity indicators have been lifting. The unemployment rate fell to a two-year low of 5.8% in December and a key survey also shows that business conditions have been around 7-year highs recently (albeit falling back a little in the December print). While the labour market and activity surveys are still holding up, the RBA is unlikely to cut rates. This pretty much rules out a cut next week.
However, as today's CPI numbers confirm, underlying inflation is no constraint on the RBA's scope to cut rates, if they deem it necessary and useful for supporting growth. At the same time, we expect growth to remain a bit below trend this year and recent global developments, particularly in China, suggest the risks to the growth outlook are tilted to the downside. 
A fourth year of below trend growth is expected to continue to weigh on the outlook for Australian inflation. The recent fall in oil prices is also a clear downside risk to the inflation outlook. In short, we do not see enough growth momentum to get inflation back to the mid-point of the target band this year.
What will trigger the RBA to move?
In our view, some pullback from the strong pace of jobs growth or the high level of business conditions, combined with a continued cooling of the Sydney and Melbourne housing markets may be enough to convince the RBA that another cut may be needed. 
Of course, a further fall in the AUD, perhaps to US60-65 cents, could do the work for them, but the currency does seem to be quite sticky around the US70 cent level.
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%202.43.19%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%202.43.19%20PM.png" alt="" width="705" height="320">
 
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%202.44.53%20PM.png">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%202.44.53%20PM.png" alt="" width="825" height="369">
Paul Bloxham is chief economist (ANZ) for HSBC . Daniel Smith is economist. They can be contacted <a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">here</a>.
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Inflation is low, but unsurprisingly so: HSBC's Paul Bloxham

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GUEST OBSERVER
RBA Governor Glenn Stevens spoke at an Australian Business Economists dinner and offered a long term look of the big forces, many of them negative, impacting the economic outlook.
When asked about the short term policy outlook, and particularly the February RBA board meeting, Stevens said we should just "chill out" over Christmas and "come back and see what the data say".
Stevens' speech was less positive than the "glass half full" varieties that had been given as recently as 13 October by Deputy Governor Philip Lowe. But his comments were in line with the recent Statement on Monetary Policy in which the RBA's growth and inflation forecasts were lowered.
Crucial to the RBA over the holiday period will be the outcome of the US central bank policy meeting on 16-17 December, the next two Australian labour force reports and the December quarter CPI due on 27 January.
Subject to surprises from those events (especially a continuation of strong employment growth) we maintain our view that in 2016, the Australian economy will be less assisted by 2015's tailwinds. The stimulus from housing and the lower AUD will fade. We also think consumption growth is unlikely to be as strong as the RBA currently forecasts. 
We think the inflation outlook provides no impediment to lower rates. And so, we expect the RBA will implement more cuts. As Stevens said tonight, if growth can be dialled-up to wind-in the economy's spare capacity and "make things better", further rate cuts are appropriate. We maintain our view that cash rate will be cut twice by 25bps, most likely in February and May.
Governor Stevens' speech followed an address by Deputy Secretary of the Treasury, Nigel Ray today at the same conference who said that updated population and labour force trends would cause Treasury to downgrade the economy's potential growth. "We now think potential GDP will grow by around 2¾% over the next few years, lower than the 3% estimated at Budget."
This theme was also touched upon by Stevens who reiterated the known weight of the demographic change, but also noted costs such "as the problems of providing retirement incomes" because low yields on fixed income assets mean that it is expensive to purchase a secure stream of future income. He said "this may mean that Australian listed corporates feel the pressure from shareholders to deliver that, even some whose earnings are inherently volatile". 
Stevens also pointed to demographic changes in China, which "are not favourable" as China's total working-age population will shrink over the years ahead. He contrasted this with India where the working age population will exceed China's within a decade.
Other influences on growth highlighted by Stevens were;
The closing chapters of the terms of trade event.
Households no longer being able to lead growth by increasing leverage.
The global legacy effects of debt, after a period of over-confidence and under-appreciation of risk.
A disinflationary or deflationary environment for goods and commodities, and even some services, accompanied by unusually low rates of wages growth.
Extremely low returns on safe financial assets.
High and rising valuations on existing fixed assets.
 
Cherelle Murphy is co-head of Australian Economics, ANZ and can be contacted <a href="https://bluenotes.anz.com/authors/our-economists/" target="_blank">here</a>.
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RBA's Stevens and Treasury's Ray Sombre update on "Big Forces": Cherelle Murphy

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<div>Delving into the detail behind the Consumer Price Index figures for the third quarter reveals that annual rental price growth in Australia is now tracking at its lowest level since June 1995, with rents up nationally by just +1.5% over the year to September 2015.</div>
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<div>The data series captured at the capital city level shows the cylical nature of property prices and rents.</div>
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<div>The national level figures show the marked contrast beteween rental price inflation in periods when investors and housing starts were knocked out of the market (1985-1987) and those where investors have flooded the market with rentals and construction has boomed (2012-date).</div>
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<div><a href="/images/2015/10/30/Rents1.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/10/30/Rents1.jpg" alt=""></div>
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Naturally significant variances are evident across the capital cities. <div>Annual rental growth remained steady in Sydney (+2.5 per cent), but was softer in Melbourne (+2.2 per cent) and Brisbane (+1.1 per cent), while Perth has now slipped into negative territory on this series (-1.6 per cent) after a big run-up through the resources boom. </div>
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<div><a href="/images/2015/10/30/Rents4.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/10/30/Rents4.jpg" alt=""></div>
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<div>Looking at the annualised data reveals the softening trend, particularly in Perth.</div>
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<div><a href="/images/2015/10/30/Rents2.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/10/30/Rents2.jpg" alt=""></div>
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In the smaller capital cities, Hobart appears likely to play host to a level of rental growth over the year ahead with vacancy rates in the Tasmanian capital having tightened sharply. On the other hand Darwin has the opposite problem and has now sunk into negative territory, joining Canberra where annual rents have been negative since the first quarter of calendar year 2014.
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<div>Click to enlarge</div>
<div><img src="/images/2015/10/30/Rents3.jpg" alt=""></div>
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<div>Finally, a look at rental growth across 5 and 10 year time periods by capital city shows how the resources capitals enjoyed the bulk of rental growth until the end of the resources boom.</div>
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<div><a href="/images/2015/10/30/Rents5.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/10/30/Rents5.jpg" alt=""></div>
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PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>. 
His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.
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pwargent-M4siyDbqQY

Rental inflation soft: Pete Wargent

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The Australian Bureau of Statistics (ABS) released quarterly Consumer Price Index data for September 2015. The data showed that headline inflation was recorded at 0.5% for the quarter and was 1.5% higher over the year.
<a href="/images/2015/10/28/Chart-14.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-14.jpg" alt="">
 
As the above chart shows, at 1.5%, headline inflation is below the Reserve Bank’s target range of between 2.0% and 3.0% per annum.  While the headline figure is important, the RBA also likes to look at measures of underlying inflation which exclude some of the more volatile items.  Both measures of underlying inflation; the trimmed mean and the weighted median were recorded at a lower 0.3% over the quarter and have increased by 2.1% and 2.2% respectively over the past year.  These annual increases place underlying inflation within the lower band of the RBA’s target range, it would also indicate that if the RBA felt it necessary they have scope to reduce official interest rates.
<a href="/images/2015/10/28/Chart-23.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-23.jpg" alt="">
The effects of inflation are also an important factor to consider for housing markets.  Although we generally talk about home value growth in nominal terms, real or inflation-adjusted home value changes are also important to consider.  Over the 12 months to September 2015, combined capital city home values have increased by a nominal rate of 11.0% however, in real terms that figure drops to 9.4%.  The above chart shows the annual rate of value change across the individual capital cities in both nominal and real terms.  It highlights once again the significant difference in value growth conditions in Sydney and Melbourne relative to the other capital cities.
<a href="/images/2015/10/28/Chart-32.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-32.jpg" alt="">
 
In real terms home values have only increased over the past five years in Sydney and Melbourne.  On a compound annual basis, falls have been recorded at -1.7%pa in Brisbane, -2.0%pa in Adelaide, -1.5%pa in Perth, -3.5%pa in Hobart, -3.9%pa in Darwin and -1.4%pa in Canberra.  Real home values have increased at a rate of 4.9%pa over the past five years in Sydney and 1.7%pa in Melbourne.  Over the past decade, real home values have fallen in Hobart and have risen at a rate of less than 2%pa in Brisbane, Adelaide and Canberra.
<a href="/images/2015/10/28/Chart-4.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-4.jpg" alt="">
 
To further highlight the differences across the cities it is valuable to have a look at nominal and real value growth across the capital cities since 2008.  Between March and December of 2008 combined capital city home values fell by a nominal -6.1% or a real -8.3%.  On the back of aggressive interest rate cuts and stimulus in the form of the Boost to the First Home Owners Grant, values began to rise from that point.  Although combined capital city home values have increased since 2008, this is largely by virtue of strong value growth in Sydney and Melbourne.  In fact, real home values are currently lower in Brisbane (-5.2%), Adelaide (-5.4%), Perth (-3.0%) and Hobart (-16.1%) than they were at the end of 2008, almost eight years of no real value growth in these cities.  Real value rises have been moderate since 2008 in Darwin (5.0%) and Canberra (4.1%) and substantially greater in Sydney (51.4%) and Melbourne (41.9%).
<a href="/images/2015/10/28/Chart-5.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-5.jpg" alt="">
The above chart looks at the change in real home values on a quarterly basis since their previous peak.  What is immediately noticeable is that Sydney (+24.3%) and Melbourne (+8.9%) are the only cities in which values are now higher than their previous peaks.  The journey to get back above their peaks was somewhat different, Sydney took 41 quarters to eclipse its March 2004 peak while Melbourne took 19 quarters to eclipse its September 2010 peak.  Across each remaining capital city, real home values are below their previous peaks, the figures for each city are: -11.8% in Brisbane, -10.0% in Adelaide, -13.0% in Perth, -21.3% in Hobart, -17.9% in Darwin and -8.1% in Canberra.  For Brisbane, Perth and Hobart in particular the journey back to the previous peak has proven to be long with these markets previously peaking in March 2008, September 2007 and December 2007 respectively.
As values continue to rise in Sydney and Melbourne and show falls or moderate nominal growth in other capital cities, the affordability gap will continue to widen.  At some point these other capital city markets will once again become attractive to buyers.  Importantly this won’t be driven by affordability factors alone; employment opportunities, amenity and local infrastructure, amongst other factors, will be important factors.  The data also highlights that long periods of value falls do happen in the Australian housing market and clearly housing is not a one-way bet.  The broader statistics do tend to be overshadowed by the impact of the Sydney and Melbourne housing markets who are substantially bigger than all other capital cities.
 
Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/author/cameron-kusher/" target="_blank">here</a>.
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Real home values remain below previous peak: Cameron Kusher

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GUEST OBSERVER
 The headline CPI lifted 0.7% in Q2 compared to the market’s expectation for 0.8%. The annual rate was 1.5%yr. Despite a downside surprise on food, the CPI came broadly in line with expectations as housing continued to underpin modest outcomes for core and non-tradeable inflation.
The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.5%qtr right on Westpac’s estimate. In the quarter, the trimmed mean gained 0.56% while the weighted median lifted 0.51%. The annual pace of the average of the core inflation measures is now 2.3%yr, a slight moderation from the 2.4%yr pace of Q1. 
In Q2 petrol prices surged (12.2%qtr), but the big surprise was the soft print on food, –0.2%qtr, in part due to a –1.2% for fresh fruit &amp; vegetables. Also surprising on the downside was a –3.5% fall in holiday travel. Clothing &amp; footwear was as expected at 1.3%qtr. 
Housing costs continue to underpin both core and non-tradeable inflation, rising 0.7%qtr, driven by a solid 1.5% gain in dwelling purchase prices. To this was added solid gains in hospital &amp; medical services (3.4%qtr) and alcohol &amp; tobacco (1.2%qtr). The modest offsets came from pharmaceuticals (–1.8%qtr), audio visual &amp; computing services (–1.6%qtr) and communications (–0.6%qtr). 
<a href="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%208.54.43%20AM.png" target="_blank">Click to enlarge</a>
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The September quarter has many ‘unknowns’ (as always). 
For the September quarter we have identified three large forces pushing the CPI in one direction with few significant offsets. But, as always, a large number of unknowns remain. We don’t have access to a lot of the data the ABS uses and, in many cases, it is not possible to replicate the survey process the ABS uses causing many small errors along the way.
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<img src="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%208.56.40%20AM.png" alt="">
 
Automotive fuels are a modest negative. 
One of the most obvious events in the last few quarters has been the extreme volatility in the pump price of automotive fuels. From a peak at the start of the quarter of $1.42/l, the pump price fell to a low of $1.27/t before ending the quarter around that level. In terms of the quarterly averages, we forecast that the price of automotive fuels will fall 2.4% in the quarter producing a very small —0.09ppt drag on the CPI. Fuel is the most significant negative we have found for the September quarter CPI. All others are estimated to be individually worth –0.03ppts or less for the CPI. 
A number of meaningful positives are setting the foundations ... 
The most significant positives in the September quarter are fresh fruit &amp; vegetables (+0.10ppts), the indexing of the tobacco excise to the CPI (+0.08ppts), new dwelling purchases (+0.11ppts), household contents (0.11ppts) and holiday travel (0.21ppts). 
... such as fresh fruit &amp; vegetables ... 
The wholesale price of vegetables rose 1.2% in Q3 following a solid 1.8% in Q2. For Q3 we have pencilled in a small 0.5% rise in the CPI measure of vegetable prices; they fell 1.7% in Q2 and we suspect the larger than usual seasonal fall in potato prices may have had a role to play. Nevertheless, we can’t be sure how movements in the wholesale price have been passed on at the retail level. 
Wholesale fruit prices jumped 7.2% in Q3 following a 25.2% surge in Q2. Despite this, fruit prices in the CPI fell 0.7% in Q2 so we are expecting some residual catch to appear in Q3, but are cognisant that increased competition in the supermarket sector may limit this, hence our forecast for just a 6.0% increase in CPI fruit prices in Q3. 
All together, we are forecasting fruit &amp; vegetable prices to rise 3.5%qtr contributing 0.10ppts to the CPI. 
... tobacco excise re-indexing ... 
In the month of September the tobacco excise is indexed to the annual increase in the CPI to the June quarter. This means that one third of the increase appears in the September quarter and two thirds in the December quarter. For the September quarter we estimate that this re-indexing, along with normal seasonal retail price increases, lifted tobacco prices by 2.6% and is worth 0.06ppts for the CPI. 
... dwelling price gains in NSW &amp; Vic ... 
Dwelling prices can be very volatile from capital city to capital city and quarter to quarter. Melbourne dwelling prices have been particularly volatile of late, rising 0.8%qtr in the December quarter, falling 0.1%qtr in the March quarter then rising 2.0% in the June quarter. By comparison, Sydney prices have been trending higher and rose 2.4% in the June quarter. In the June quarter, dwelling prices rose 1.5%qtr, the strongest rise in dwelling prices since the 1.6%qtr print in June 2014. Westpac is expecting some moderation from Melbourne and Brisbane, which will see dwelling prices rise 1.3% in September quarter contributing 0.11ppts. 
<a href="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%208.57.53%20AM.png" target="_blank">Click to enlarge</a>
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... and housing overall making a positive contribution. 
For housing costs there is a small offset from the fall in electricity prices, we estimate around –4.0%qtr on average across the country, as regulated electricity prices fall. This is worth –0.08ppts on the CPI. Other housing components such as rents, other housing costs and non-electricity utilities, are set to continue to rise, resulting in a 0.9%qtr lift in total housing costs, contributing 0.20ppts for the CPI. 
We are also looking for a very modest AUD depreciation boost to the usual seasonal Q3 rise in household contents and services. Our forecast 1.2%qtr rise follows on from a 1.0% rise in the June quarter and will contribute 0.11ppts to the Q3 CPI. 
The Q2 fall in holiday travel costs will be reversed in Q3 
Holiday travel surprised in the June quarter falling 3.5% due to a –5.4% print from domestic holiday travel. The BITRE (Bureau of Infrastructure, Transport &amp; Regional Economics) data on the best price economy airfares was pointing to a flat print in Q2 followed by a large fall in Q3; but as you can see in the chart, the timing when the BITRE data price moves and when it appears in the CPI appears to have shortened. As such, we are looking for a 2% bounce in domestic holiday costs, which will add to the 7.2% rise in international holidays. The rise in international holidays is due to both seasonal factors and a trickle through impact of the depreciation of the AUD.
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<img src="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%209.00.05%20AM.png" alt="">
Overall seasonality is a reasonable positive in Q3 
Using the ABS’s seasonal factors, the seasonally adjusted CPI rises 0.6%qtr compared to our headline forecast of 0.8%. There is an important caveat however; the ABS conducts concurrent seasonal re-analysis, and the revisions to the seasonal factors can sometimes be quite significant. As such, we caution that we can’t be sure what the ABS will estimate as the seasonal impact in Q3. This matters as the components of the CPI are seasonally adjusted before they are trimmed for the core measures. As such, revisions to the seasonal factors can impact the historical estimates of core inflation. 
Core inflation to remain within the band 
Westpac is forecasting the average of the core measures to rise 0.5% in Q3, lifting the annual pace to 2.4%yr from 2.3%yr in Q2. More importantly, the six month annualise pace of core inflation is forecast to drop to 2.1%yr in Q3, from 2.5%yr in Q2 and a recent peak of 2.8%yr in Q1. 
Traded goods &amp; services are forecast to rise 0.8%qtr, lifting the annual pace to 0.2%yr from –0.3%yr; non-traded prices are also forecast to rise 0.8%qtr, but this takes the annual pace to 3.0%yr from 2.6%yr. Domestic, non-traded prices remain the key source of inflationary pressures, with housing and recreation remaining the key factors in the quarter. 
Conclusion 
A solid Q3 headline print is due to rising fresh fruit and vegetable prices, the re-indexing of tobacco excise and a bounce in holiday travel costs which add persistent gains in housing. While this is keeping inflation ticking along, the annual pace remains below the band and the six month annualised pace for the core measure is forecast to ease back to the bottom of the band. On balance, Australia does not face the risk of an inflation breakout nor the commencement of a significant disinflationary impulse. Inflation remains neutral for monetary policy.
 
 
Justin Smirk is senior economist, Westpac, and can be contacted <a href="https://www.westpac.com.au" target="_blank">here</a>.
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