Social Trends – Page 18 – Digital Finance Analytics (DFA) Blog

Australian Inflation Wobbles Lower But…

The ABS released the quarterly inflation read today, together with the monthly update. Overall the Consumer Price Index (CPI) rose 0.6 per cent in the December 2023 quarter, lower than the 1.2 per cent rise in the September 2023 quarter and 4.1 per cent annually, This was the smallest quarterly rise since the March 2021 quarter. The RBA’s preferred measure of underlying inflation (the trimmed mean), which strips out irregular or temporary price changes, rose 4.2 per cent annually, down from 5.1 per cent in the September quarter.

Remember of course this still means that prices continued to rise for most goods and services, though annual CPI inflation has fallen from a peak of 7.8 per cent in December 2022, to 4.1 per cent in December 2023.

Markets reacted by pushing the ASX 200 to a new all-time high, closing at 7,680.70 on Wednesday, 50 points higher that its previous peak set in August 2021 on the assumption that this CPI result will mean the RBA holds interest rates when they meet next Tuesday. Falls however are not expected until later in the year, or into 2025, depending on which economists you chose to listen to.

Money market traders are now fully pricing the first 0.25 of a percentage point cut to the 4.35 per cent cash rate in August, from September before the inflation data. A second rate cut is fully factored in by December.

Westpac chief economist and former RBA assistant governor Luci Ellis said the RBA was “unlikely to raise rates further this cycle”.

there is certainly some more positive news in these numbers, though of course real felt inflation is way off the official reported average numbers for some households.

But that said, domestic-generated inflation remained firm due to strong price rises for new dwellings (5.1 per cent), rents (7.3 per cent after extra rent assistance), insurance (16.2 per cent) and electricity (6.9 per cent after bill subsidies).

The inflation for so-called non-tradable goods and services, which are mostly influenced by domestic factors, rose 5.4 per cent, down from 6.2 per cent.

ANZ economist Catherine Birch said non-tradables inflation was “still very strong” and could make the RBA retain its “hawkish” tone on monetary policy at its meeting next week.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Kiwi Inflation Eases, But Slowly, So Rates Will Remain Higher For Longer!

On Wednesday Statistics New Zealand released consumer price index (CPI) data for the December quarter. The data showed that New Zealand inflation slowed in the final three months of 2023, despite indicators of domestic price pressures remained stubbornly strong, which came in below the Reserve Bank’s expectations. As a result, it appears that policymakers are likely to hold until there’s a clearer picture of the economy.

“While this is the smallest annual rise in the CPI in over two years, it remains above the Reserve Bank of New Zealand’s target range of 1 to 3 percent,” consumers prices senior manager Nicola Growden said.

The OCR currently stands at 5.5%. While Investors are betting the RBNZ will start cutting the Official Cash Rate in the second quarter and will lower the benchmark to 4.75% by year’s end. But as I discussed recently, policymakers remained concerned about sticky core prices and most economists expect the RBNZ will delay a rate cut until the second half of 2024. In November, the central bank projected that inflation would drop below 3% in the third quarter of this year.

“Inflation continues to move in the right direction,” said Jarrod Kerr, chief economist at Kiwibank in Auckland. “The current state of play and the outlook should be sufficient to see the RBNZ pivot away from rate hikes. Rate cuts are not too far away.”

However, others remain more sanguine. “The divergence between the domestic and imported components of inflation helps to illustrate the big concerns that the RBNZ is trying to balance,”said Satish Ranchhod, senior economist at Westpac Banking Corp.

“Inflation is coming down. That will be important for stabilizing inflation expectations and means that the RBNZ will feel more comfortable keeping the OCR on hold for now.”

Westpac believes the CPI print will keep the Reserve Bank of New Zealand on hold through 2024 because inflation is “still uncomfortably high”.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Government Policy Makes Households Pay through The Nose For Energy!

The latest forward view of Australian Wholesale Energy Prices out to 2027 show prices for East Coast consumption will remain at nose-bleed levels out as far as 2027, according to data from the Australian Energy market.

There is a reason for this, in that marginal wholesale power prices are remarkably set based on the cost of gas, via LNG in the international markets. This will pressure get worse as coal fired generation is retired across Australia.

Governments of various flavours have messed up here from a policy perspective, in that a small number of international operators are the Australian gas cartel of Santos, Woodside, Origin, Shell, Exxon and friends.

The Governments latest solution to the high price of power, was to set a policy price cap of $12 a gigajoule in the domestic market that is unless cartel members meet certain exemptions such as investing in new gas projects.

That $12 cap was set after receiving warnings from Treasury that energy prices were set to soar by about 50 per cent over 2023 and the first half of 2024. As a result of the intervention, power prices were reduced, by an estimated $230 dollars a year, which is mere chicken feed, given the massive run up in price. Estimates are the average household bill will rise by $700 by mid-2024 compared to June 2022, based on Treasury figures. And In practice the $12 cap is behaving as a floor, as the cartel ships more gas offshore.

All of this means that China who can often on-sells the gas to Europe at a healthy profit, is still seeing cheaper gas prices than in Australia!

The solution of course is for the Government to increase the local reservation and reduce the price cap (floor). But that would bring them up against the political and economic powers of the gas cartel.

So the bottom line is that Australian East Coast households are being taken to the cleaners, one reason why costs of living are so high, while local manufacturers are being priced out, and reducing the capacity for local production.

Which begs the question is this simple stupidity, or something much worse. Who really are pulling the economic strings in the country? Game of Mates anyone?

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/