By Craig James

In the coming week inflation dominates the Australian economic calendar. In the United States a raft of indicators is released including those covering economic growth, consumer confidence and home sales.

It is a quiet start to proceedings in Australia in the coming week. Many would have sought an extra day of leave on Monday to lock in an extra-long weekend given that the Australia Day holiday will be held on Tuesday.

On Wednesday National Australia Bank releases its December business survey and investors will look for a continuation of improving conditions.

Also on Wednesday, CommSec will release the quarterly State of the States report – an assessment of the economic performance of state and territory economies.

And also on Wednesday, the main measure of inflation in Australia – the Consumer Price Index (CPI) – is scheduled for release. And the indications are that another low reading of inflation is on the cards.

We are tipping a modest 0.3% lift in the headline rate of inflation, leaving the annual inflation rate locked near 1.5-1.6%.

One factor constraining overall price growth is the falling cost of petrol. Pump prices probably fell by 6.3% in the December quarter, slicing around 0.2 percentage points off the quarterly CPI.

During the quarter there are generally seasonal price increases in tobacco prices and the cost of domestic holidays and accommodation. Offsetting these price changes, lower prices are likely for pharmaceutical goods reflecting changes to the Pharmaceutical Benefit Scheme (PBS) safety net. Higher prices are likely for dwelling purchase while rents may have been flat or lower in the quarter.

The Reserve Bank attempts to keep inflation between 2-3% over time. But when prices of goods like petrol prices are slumping, the Bank tends to focus more on measures of “underlying” prices. We suspect that underlying price measures probably grew around 0.5 per cent in the quarter will annual growth around 2.0%.

Should prices move in line with forecasts, that is, inflation stays low, the Reserve Bank will retain its conditional ‘easing bias’. In other words, the Reserve Bank has indicated that – should the economy need it – the Reserve Bank won’t hesitate to cut interest rates again.

On Thursday the Bureau of Statistics (ABS) will release more data on prices, this time figures on import and export prices. These international price measures tend to be dominated by changes in the Australian dollar and iron ore, coal and oil prices.

On Friday, the Producer Price Indexes (PPI) is released by the ABS. While the CPI covers retail prices, the PPI are focussed on business prices or inflation.

Also on Friday the Reserve Bank releases data on loans outstanding – or Private Sector Credit. New loan commitments are rising – now at 7½-year highs – and this is reflected in higher credit growth. We expect that credit grew around 0.6 per cent in December to stand around 6.6 per cent higher over the year.

Raft of US economic indicators due for release

There are no key indicators to watch in China in the coming week so the US hogs the limelight. Economic growth data and the Federal Reserve decision are the highlights.

The week kicks off on Monday with the release of the Dallas Federal Reserve index. On Tuesday, two measures of home prices are released with consumer confidence, the influential Richmond Federal Reserve index and weekly chain store sales.

The two price measures are from the Federal Housing Finance Agency index and the CaseShiller index of home prices

On Wednesday the Federal Reserve begins a two-day policy meeting with the decision announced on Thursday morning at 6am AEDT. New home sales data is also released on Wednesday together with the weekly housing finance data.

Also on Thursday data on durable goods orders (a measure of business investment) is released together with pending home sales, the Kansas City Federal Reserve index and the weekly data on claims for unemployment (jobless claims).

On Friday the “flash” or advance measure of economic growth (GDP) is released in the US. Economists expect that the economy slowed to a 1.3 per cent annual pace in the December quarter, down from 2.0% in the September quarter. The Federal Reserve believes this slowdown is temporary, thus its decision to lift rates in December.

Also released on Friday quarterly data is released on employment (wage) costs, consumer sentiment and the Chicago purchasing manager’s index. The wage data is important in its link with inflation and, in turn, interest rates.

Sharemarkets, interest rates, exchange rates and commodities

The US earnings season continues. On Monday, 28 companies are to report including McDonalds.

On Tuesday earnings from 68 companies are expected including Apple.

On Wednesday, 102 companies are scheduled to report their results including eBay, Facebook and Boeing.

On Thursday as many as 175 companies are to report. Included are Microsoft, Amazon and Ford Motor.

And on Friday 29 companies are to report including Chevron.