Tag: cpi

Big Consequences As The Inflation Higher For Longer Drama Plays Out As Expected…

Well now we know. While the annual Australian headline inflation rate slipped to 2.8%, which is just within the RBA’s target 2-3% band, from 3.8% in the June quarter and is the lowest since March 2021, underlying inflation remains well above the RBA’s 2 per cent to 3 per cent target band at 3.5 per cent in line with forecasts. Annual Goods inflation was 1.4 per cent, down from 3.2 per cent in the June quarter.

The trimmed mean measure of consumer prices, which smooths out volatile items, rose 0.8% in the three months through September, matching estimates, but services inflation rose to 4.6% from 4.5% last time around. This is the prices of all those things you can’t drop on your foot. The biggest culprits were rent, insurance, education, and medical, dental and hospital services costs. Education prices were up 6.4 per cent. The cost of taking pets to the vet rose by 5.8 per cent in the year to September, while the price of a haircut went up by 6.3 per cent and the cost of a visit to the mechanic jumped by 4.3 per cent. The common theme. Wages growth.

While a first rate cut in February remains possible, with the consumer starting to feel more upbeat, wealth booming, strong population growth keeping housing costs sticky and governments still spending up a storm, the RBA doesn’t appear to have a lot of room to move.

Next year’s RBA board meetings are not until mid-February, the end of March and late May – a mile away for anyone struggling with debt.

Higher for longer remains my call as financial pressures on many households continue to build. Something will break. No Christmas rate cut present coming from Santa this year.

http://www.martinnorth.com/

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The Noise In The CPI Data Machine!

When you are totally data dependent, as the FED is, noise in the incoming data is always going to be an issue, because signal and noise might not be aligned. There was a classic case yesterday as we got the latest read on the Consumer Price Index for the US from the Bureau of Labor Statistics.

Superficially at least, underlying US inflation rose more than forecast in September, representing a pause in the recent progress toward moderating price pressures, boosted by housing and food, which accounted for over 75% of the advance. Goods prices rose as well after reliably falling over the past year.

I have discussed before the disconnect between real lived experience of inflation and the official figures before, but if we break down inflation into its four main components, we find that it’s substantially all about services at this point. That’s been true for a while. Goods prices are deflating, but helped cause some of the disappointment because that’s happening less quickly than earlier in the year. In fact, food prices and air fares rose more than expected, even as shelter costs eased. That would make continued jumbo interest rate cuts difficult.

While the great spike in price rises that came the year after the pandemic has run its course, what remains is grinding down the services inflation that followed the rest, and that tends to be driven by wages.

So whether the CPI data is really signalling a slowing in reductions to inflation is questionable, but it does suggest the FED might be reluctant to go 50 basis points next meeting. And actually, the latest bond pricing suggests markets are also changing tack.

When all you have is data dependence, expect more volatility as the data or noise shifts around.

http://www.martinnorth.com/

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The Noise In The CPI Data Machine!
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Window Dressing: The Ozzie Inflation Battle Raises Burning Questions For Us All!

In the past 48 hours we had a no change interest rate decision from the RBA and monthly headline inflation which dropped within the target 2-3% target range from the partial services heavy monthly data release, thanks to temporary Government handout to ease costs of living so window dressing the results, but which the RBA says they will look through in the policy deliberations.

The RBA, is facing increasing pressures at home to lower borrowing costs, with politicians sparring over the outlook on interest rates ahead of an election due by May 2025. But Bullock said the RBA won’t be dragged into politics as it is splitting with a global easing cycle as it waits for inflation to abate.

So today I want to look at the RBA statement, then delve into the detail from the inflation numbers and finally try to figure out what this all means.

The RBA last month warned the rapid rise in government outlays was one of the factors prolonging high inflation. The bank’s statement was a political headache for Dr Chalmers, and Ms Bullock subsequently softened the central bank’s stance, saying government spending was not the “main game” for inflation.

At the federal level, government spending on childcare, aged care and disability care surged by more than 20 per cent over the past year, while spending on public servant wages jumped 14.5 per cent. Spending on the NDIS has been a major driver of the explosion in government spending. The scheme, which is forecast to cost $49 billion this financial year, is growing at about 20 per cent per year and is on track to cost more than the age pension within a decade.

Since the 2019 calendar year, the underlying cost base in the construction sector has grown by a whopping 36 per cent, compared to around 21 per cent in the non-mining market sector as a whole.

As the public sector expands, productivity growth would temporarily slow as more resources poured into sectors such as healthcare and education, where productivity is about one-third lower than the private sector.

http://www.martinnorth.com/

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

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Window Dressing: The Ozzie Inflation Battle Raises Burning Questions For Us All!
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Latest CPI Data Says Services Inflation Is Still Riling!

On Wednesday the BLS released the latest US inflation data and top line, it appears the post-pandemic spike in U.S. inflation eased further last month as year-over-year price increases reached a three-year low. However, while the spike in goods, food and energy prices is over, services inflation remains uncomfortably high.

Core prices rose 3.2% in August from a year ago, the same as in July. And on a month-to-month basis, core prices rose 0.3%, a slight pickup from July’s 0.2% increase. Core of course is closely watched by economists as it typically provides a better read of future inflation trends.

But it is important to look at the elements which flowed into the headline cpi. For example, a key reason for last month’s drop in overall inflation was the third drop in gas prices in the past four months: Average gas prices fell 0.6% from July to August and are down 10.6% from a year ago.

Importantly, the tick-up in core inflation from July to August reflected an acceleration in housing costs and some spikes in the prices of air fares and hotel rooms. Shelter highlights another serious issue — the high level of “sticky” inflation for services and commodities whose prices take a long time to change. Including shelter, this measure, calculated by the Atlanta Fed, remains above 4%. If shelter is ignored, it’s below 3%, making it far easier for the Fed to start easing!

But the big question now is whether we are in a pre-recession period in the US. Markets continue to expect big cuts ahead and bond yields are responding accordingly.

For Australia, where inflation is higher, and rates are unlikely to change this year from the current 4.35%, the economy will be buffeted by weaker demand from China, and rate cuts in other places. Which once again highlights the dilemma we are in thanks to poor monetary and fiscal policy in recent times. And again, the neutral rate does appear to be higher now, so we should not expect rates to miraculously slide towards zero. We are now in a higher rate for ever environment.

http://www.martinnorth.com/

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

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Latest CPI Data Says Services Inflation Is Still Riling!
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Latest CPI Data Says Services Inflation Is Still Riling!

On Wednesday the BLS released the latest US inflation data and top line, it appears the post-pandemic spike in U.S. inflation eased further last month as year-over-year price increases reached a three-year low. However, while the spike in goods, food and energy prices is over, services inflation remains uncomfortably high.

Core prices rose 3.2% in August from a year ago, the same as in July. And on a month-to-month basis, core prices rose 0.3%, a slight pickup from July’s 0.2% increase. Core of course is closely watched by economists as it typically provides a better read of future inflation trends.

But it is important to look at the elements which flowed into the headline cpi. For example, a key reason for last month’s drop in overall inflation was the third drop in gas prices in the past four months: Average gas prices fell 0.6% from July to August and are down 10.6% from a year ago.

Importantly, the tick-up in core inflation from July to August reflected an acceleration in housing costs and some spikes in the prices of air fares and hotel rooms. Shelter highlights another serious issue — the high level of “sticky” inflation for services and commodities whose prices take a long time to change. Including shelter, this measure, calculated by the Atlanta Fed, remains above 4%. If shelter is ignored, it’s below 3%, making it far easier for the Fed to start easing!

But the big question now is whether we are in a pre-recession period in the US. Markets continue to expect big cuts ahead and bond yields are responding accordingly.

For Australia, where inflation is higher, and rates are unlikely to change this year from the current 4.35%, the economy will be buffeted by weaker demand from China, and rate cuts in other places. Which once again highlights the dilemma we are in thanks to poor monetary and fiscal policy in recent times. And again, the neutral rate does appear to be higher now, so we should not expect rates to miraculously slide towards zero. We are now in a higher rate for ever environment.

http://www.martinnorth.com/

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

Is The Door Closed On A Further Rate Rise In Australia?

The ABS released their latest on CPI, with the quarterly results to June, and the monthly. The data of course feeds into the RBA rate decision next Tuesday. The Consumer Price Index (CPI) rose 1.0 per cent in the June 2024 quarter and 3.8 per cent annually. So real prices are still rising. Underlying inflation which measures reduce the impact of irregular or temporary price changes in the CPI – the annual trimmed mean inflation was 3.9 per cent, down from 4.0 per cent in the March quarter. This is the sixth quarter in a row of lower annual trimmed mean inflation, down from the peak of 6.8 per cent in the December 2022 quarter.

At first blush, the data could be bent in support of an argument that inflation continues to fall, especially if you focus on the core measure, which is precisely where Treasure Chalmers went in his statement, and in which he also argued that inflation was about 0.5% lower thanks to Government support for electricity and rents, etc. ““While headline inflation is proving sticky and stubborn, and is more persistent than we would like, it is less than half its peak,” he said. “Inflation is lingering for longer than we had hoped across the globe, and Australia’s experience is no different.”

But then, remembering RBA Governor Bullock said she would look through these temporary adjustments, the story swings more to the rise in headline inflation, which came in as expected. Actually the RBA was forecasting CPI inflation to reach 3.8%yr in the June quarter, in line with today’s result. However, for core inflation, the RBA was also forecasting 3.8%yr for June, so the 3.9%yr pace was a touch stronger than they were expecting.

All this means if the RBA felt the need to lift rates they could justify it, but also if not, they could find reason to hold, so if comes down to judgement and weighting the political and economic consequences. Nothing here though to justify a rate cut.

http://www.martinnorth.com/

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

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Is The Door Closed On A Further Rate Rise In Australia?
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Is The Door Closed On A Further Rate Rise In Australia?

The ABS released their latest on CPI, with the quarterly results to June, and the monthly. The data of course feeds into the RBA rate decision next Tuesday. The Consumer Price Index (CPI) rose 1.0 per cent in the June 2024 quarter and 3.8 per cent annually. So real prices are still rising. Underlying inflation which measures reduce the impact of irregular or temporary price changes in the CPI – the annual trimmed mean inflation was 3.9 per cent, down from 4.0 per cent in the March quarter. This is the sixth quarter in a row of lower annual trimmed mean inflation, down from the peak of 6.8 per cent in the December 2022 quarter.

At first blush, the data could be bent in support of an argument that inflation continues to fall, especially if you focus on the core measure, which is precisely where Treasure Chalmers went in his statement, and in which he also argued that inflation was about 0.5% lower thanks to Government support for electricity and rents, etc. ““While headline inflation is proving sticky and stubborn, and is more persistent than we would like, it is less than half its peak,” he said. “Inflation is lingering for longer than we had hoped across the globe, and Australia’s experience is no different.”

But then, remembering RBA Governor Bullock said she would look through these temporary adjustments, the story swings more to the rise in headline inflation, which came in as expected. Actually the RBA was forecasting CPI inflation to reach 3.8%yr in the June quarter, in line with today’s result. However, for core inflation, the RBA was also forecasting 3.8%yr for June, so the 3.9%yr pace was a touch stronger than they were expecting.

All this means if the RBA felt the need to lift rates they could justify it, but also if not, they could find reason to hold, so if comes down to judgement and weighting the political and economic consequences. Nothing here though to justify a rate cut.

http://www.martinnorth.com/

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

US Markets Swing Towards Rate Cuts As Inflation Eases…

Here we go again, as inflation, which had been falling last year, but rising in the first part of 2024, now appears to be easing again, so markets who at the start of the year saw 6 rate cuts, then trimmed them to none, and possibly a rise, are now again betting on multiple cuts later this year. Talk about fickle.

Actually, US inflation did cool broadly in June to the slowest pace since 2021 thanks to a long-awaited slowdown in housing costs as the so-called core consumer price index — which excludes food and energy costs — climbed just 0.1% from May, the smallest advance in three years the Bureau of Labor Statistics reported. Core CPI climbed 3.3% over the last 12 months after rising 3.4% in May.

Its too soon to bank big rate cuts in the US, as the data remains mixed, but the market is like a set of lemmings swinging one way and the next, in trying to out guess the FED. But certainly, it’s more likely now that the FED will cut well before the RBA where inflation is still on the up.

The RBA needs to tackle seemingly much higher and more intractable inflation while maintaining a far less restrictive policy given its 4.35 per cent cash rate, a rate lower than many peers. This is a policy error which will inflict lasing damage on the local economy.

http://www.martinnorth.com/

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

Today’s post is brought to you by Ribbon Property Consultants.

Digital Finance Analytics (DFA) Blog
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US Markets Swing Towards Rate Cuts As Inflation Eases...
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US Markets Swing Towards Rate Cuts As Inflation Eases…

Here we go again, as inflation, which had been falling last year, but rising in the first part of 2024, now appears to be easing again, so markets who at the start of the year saw 6 rate cuts, then trimmed them to none, and possibly a rise, are now again betting on multiple cuts later this year. Talk about fickle.

Actually, US inflation did cool broadly in June to the slowest pace since 2021 thanks to a long-awaited slowdown in housing costs as the so-called core consumer price index — which excludes food and energy costs — climbed just 0.1% from May, the smallest advance in three years the Bureau of Labor Statistics reported. Core CPI climbed 3.3% over the last 12 months after rising 3.4% in May.

Its too soon to bank big rate cuts in the US, as the data remains mixed, but the market is like a set of lemmings swinging one way and the next, in trying to out guess the FED. But certainly, it’s more likely now that the FED will cut well before the RBA where inflation is still on the up.

The RBA needs to tackle seemingly much higher and more intractable inflation while maintaining a far less restrictive policy given its 4.35 per cent cash rate, a rate lower than many peers. This is a policy error which will inflict lasing damage on the local economy.

http://www.martinnorth.com/

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

Today’s post is brought to you by Ribbon Property Consultants.

CPI: Making Sense Of The Senseless??

The ABS released the latest monthly CPI data today, and it reports that Inflation is still sticky in Australia, and accelerated faster than expected for a third straight month in May, sending the currency higher as traders boosted bets that the Reserve Bank will resume raising interest rates at its next meeting. The report comes after RBA Governor Michele Bullock restated last week that the rate-setting board isn’t ruling out a rate hike after leaving the benchmark at a 12-year high of 4.35%.

Wednesday’s figures suggest inflation is running ahead of the RBA’s forecast for underlying inflation to ease to 3.8 per cent in the June quarter. That said, the monthly numbers are at best partial, compared with the more complete quarterly data which provides a fuller picture of inflation.

In truth, for many households real inflation is much higher than the statistics suggest, with continued massive lifts in insurance costs for example, but Warren Hogan may end up being right, with further rate hikes a clear threat if the Q2 quarterly inflation print confirms the uptrend.

This is a mess, created by taking rates too low in the first place, saying they would stay low into 2024, then not returning them to normal rates soon enough, meantime luring many into property are extended prices and big loans. The route out of the years of policy failure will be difficult for many, though somehow policy makers and politicians seem to be able to find someone else to blame. How about some real accountability?

http://www.martinnorth.com/

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

Today’s post is brought to you by Ribbon Property Consultants.

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Digital Finance Analytics (DFA) Blog
CPI: Making Sense Of The Senseless??
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