Tag: Inflation

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.

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The Latest Inflation News Says We Still Have A Problem!

The RBA has said that the battle to control inflation is not yet over, and the latest data from the ABS, the monthly CPI report for July came out today and confirms that inflation does remain a problem. The monthly Consumer Price Index (CPI) indicator rose 3.5 per cent in the 12 months to July 2024, down from 3.8 per cent in June. The annual trimmed mean movement was 3.8% in July, down from 4.1% in June. But still well above the target range.

The monthly indicator is not as reliable. It covers only about 60 to 70 per cent of household items in the quarterly basket of goods and services. Moreover, the composition of measured items jumps around between being more heavily skewed towards goods in some months and more towards services in other months, making it harder to get an “apples with apples” comparison on prices.

The accumulated price increases in the past 3 years or so remain much higher than Income growth, so as my surveys show, many households are under significant financial pressure. A slowing in the rate of growth frankly is largely symbolic, we are not seeing much price deflation at all.

The extended and expanded Commonwealth Energy Bill Relief Fund rebate, and the introduction of State government rebates, have begun to take affect from July 2024. These rebates have the effect of reducing electricity costs for households, but of course the RBA is looking through this short-term support when assessing monetary policy. The rate-setting board left the benchmark at a 12-year high of 4.35% three weeks ago, saying it remains vigilant to upside risks for inflation.

With the data unlikely to sway the Reserve Bank from its hawkish stance, the yield on policy sensitive three-year notes climbed to 3.54% while the local currency rose as much as 0.3% to erase its year-to-date loss against the greenback. Money markets are still pricing in a rate cut in December.

Broader federal and state government spending has forced the RBA to delay by six months the expected return to inflation to the midpoint of the 2-3 per cent target to late 2026. Hence, governor Michele Bullock doesn’t expect to be cutting interest rates this year.

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Corporates Gouge, While IMF Warns The Inflation Squeeze Will Be On For Longer Than Expected!

Households will see Inflation around for much longer than expected and while the pressure on households continue to build, so does distrust across the economy in Australia, according to data from the IMF and a special Roy Morgan End of Financial Year webinar.

Despite the better-than-expected US inflation figures, the International Monetary Fund in its quarterly update of the World Economic Outlook just warned that momentum on global disinflation had slowed, largely due to ongoing elevated rates of services inflation.

For example, the latest data today for the UK showed that The Consumer Prices Index inflation unexpectedly stays at 2% in June, higher than economists predicted and causing a paring of bets on when the Bank of England will cut rates at its next meeting. The news sent the pound above $1.30 for the first time in a year. Services inflation that has been a special focus of the BOE was also unchanged at 5.7%. Economists had expected the headline rate to drop to 1.9%, while the central bank had forecast services at 5.1% by now. Traders pushed back bets on a rate cut next month, pricing in a roughly 30% chance of a move on Aug. 1, down from almost 50% yesterday.

In Australia, the June quarter consumer price index on July 31 will be decisive in determining whether the Reserve Bank of Australia will be forced to deliver a 14th interest rate rise at its August 6 board meeting. With underlying inflation running about 4 per cent, markets are pricing in a 16 per cent chance the RBA will raise the cash rate to 4.6 per cent, from 4.35 per cent, when it next meets. That said, bets on another rate rise from the RBA eased over the past week as bond markets rallied on the back of an outright decline in the US consumer price index, though I think the read across from the US by the markets is over done.

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Corporates Gouge, While IMF Warns The Inflation Squeeze Will Be On For Longer Than Expected!
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Corporates Gouge, While IMF Warns The Inflation Squeeze Will Be On For Longer Than Expected!

Households will see Inflation around for much longer than expected and while the pressure on households continue to build, so does distrust across the economy in Australia, according to data from the IMF and a special Roy Morgan End of Financial Year webinar.

Despite the better-than-expected US inflation figures, the International Monetary Fund in its quarterly update of the World Economic Outlook just warned that momentum on global disinflation had slowed, largely due to ongoing elevated rates of services inflation.

For example, the latest data today for the UK showed that The Consumer Prices Index inflation unexpectedly stays at 2% in June, higher than economists predicted and causing a paring of bets on when the Bank of England will cut rates at its next meeting. The news sent the pound above $1.30 for the first time in a year. Services inflation that has been a special focus of the BOE was also unchanged at 5.7%. Economists had expected the headline rate to drop to 1.9%, while the central bank had forecast services at 5.1% by now. Traders pushed back bets on a rate cut next month, pricing in a roughly 30% chance of a move on Aug. 1, down from almost 50% yesterday.

In Australia, the June quarter consumer price index on July 31 will be decisive in determining whether the Reserve Bank of Australia will be forced to deliver a 14th interest rate rise at its August 6 board meeting. With underlying inflation running about 4 per cent, markets are pricing in a 16 per cent chance the RBA will raise the cash rate to 4.6 per cent, from 4.35 per cent, when it next meets. That said, bets on another rate rise from the RBA eased over the past week as bond markets rallied on the back of an outright decline in the US consumer price index, though I think the read across from the US by the markets is over done.

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Another Dose Of Sticky Inflation Lands…

Today we got the April inflation read for the UK, (and a election announcement) which was expected to be lower than the previous month thanks to a substantial cut in the costs of energy to households. But in the end, UK inflation slowed by less than economists had predicted thanks to services inflation proving sticky, which prompted traders to pare their bets on when the Bank of England will cut rates. The first reduction isn’t now fully priced in until November, three months later than the prevailing expectation over the past few weeks and all but eliminating the chance of a cut in June that was in play yesterday.

Services inflation — which the BOE is watching carefully for signs of domestic pressures — remained little changed at 5.9% after a 6% reading the month before. It was a much smaller fall than the cooling to 5.5% expected by UK central bank, with strong wage growth keeping services inflation stubbornly high.

The easing in the annual inflation rates in April 2024 principally reflected price changes in the housing and household services – particularly for gas and electricity where a 12% drop in the UK’s energy price cap, a mechanism designed to protect consumers from sharp moves in natural gas and electricity costs came through.

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CPI Data Says Higher For Longer, Again!

We got the latest monthly data on inflation on Wednesday, and it came in a bit below market expectations, standing at 3.4% unchanged in February and has been 3.4 per cent for three consecutive months according to the ABS. Monthly data does not cover all the categories, so results are always a bit uncertain.

But just to be clear, prices are still rising faster than the RBA’s target, and while the data is volatile, there is clearly more to do to get to band. Also, I believe real inflation as experienced by many households are significantly higher than the official numbers. When excluding volatile items, the annual rise eased to 3.9% from January’s 4.1%, still well above the RBA’s 2-3% target band. Annual inflation excluding volatile items has continued to slow over the last 14 months from a high of 7.2 per cent in December 2022.

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Australian Households Pay More Because The System Is Rigged: Report

You have been hit by large rises in grocery, energy, transport, child and aged care prices, only adding to other cost of living pressures, according to a bombshell report. But the report argues the ongoing cost of living crisis is largely due to corporations unduly increasing prices.

As the Conversation reported, while extreme weather and supply delays have contributed to the increases, an inquiry into what’s causing the hikes has confirmed what commentators and consumers suspected – many sectors are resorting to dodgy price practices and confusing pricing.

Headed by the former Australian Consumer and Competition Commission (ACCC) boss, Allan Fels, on behalf of the ACTU, the inquiry found inflation, questionable pricing practices, a lack of price transparency and regulations, a lack of market competition, supply chain problems and unrestricted price setting by retailers are to blame for fuelling the increases.

The inquiry, which released its final report on Wednesday, is one of four examining price rises. The other three are being undertaken by a Senate committee, the Queensland government and the ACCC, which has been given extra powers by the government.

The official inflation rate in Australia peaked at 7.8% in December 2022 and has been gradually dropping since then.

While the inquiry found higher prices contributed to inflation, it reported that businesses claimed it was inflation that caused price rises – making it a chicken-or-egg kind of problem.

However, many businesses made enormous profits in 2022-23, which the inquiry said contributed to rising prices and inflation. In most cases, post-pandemic profit margins were much higher than before the pandemic.

The current pricing practices for all business sectors must improve for greater transparency and to protect Australian consumers from unfair pricing.

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Australian Households Pay More Because The System Is Rigged: Report
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Australian Households Pay More Because The System Is Rigged: Report

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UK Inflation Surprises On The Downside…

Prices rose by 3.9% in the year to November, down from 4.6% in October according to data from the ONS today, driven by positive base effects mainly across oil products. Remember that falling inflation also does not mean most goods and services are cheaper, but rather prices are rising less quickly.

That rise compares to a more-than four-decade high rate above 11% reached last year. The last time inflation in the UK was lower than 3.9% was in September 2021 when it was 3.1%. Most economists had expected UK inflation to fall to 4.3% last month. As a result, UK inflation has fallen to its lowest level for more than two years, driven largely by a drop in fuel prices.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.2% in the 12 months to November 2023, down from 4.7% in October. On a monthly basis, CPIH fell by 0.1% in November 2023, compared with a rise of 0.4% in November 2022. Within that energy prices fell, but rent and council tax were higher.

Slowing price rises for food, including staples such as pasta, milk and butter, as well as for household goods were also behind the fall.

But while inflation, which is the rate prices rise at, is now well down from its peak in 2022, it is still almost double the Bank of England’s 2% target.

UK inflation remains higher than in other countries including the US and Germany but the gap is narrowing. The fall to 3.9% in November puts the UK on level footing with France, but ahead of the EU’s average rate of 3.1% and the US’s 2.1%.

The softer inflation data prompted Goldman Sachs to bring forward its expectation for the first BOE rate cut to May from June previously.

Ahead, of course the impact of potentially higher Oil prices thanks to the closure of the Suez Canal for some ships, which have driven oil prices higher, and the removal of Government support for higher power prices might turn the inflation gauge higher in the months ahead. So again, markets are ahead of themselves, it will be some time before inflation is approaching the 2% target.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
UK Inflation Surprises On The Downside...
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UK Inflation Surprises On The Downside…

Prices rose by 3.9% in the year to November, down from 4.6% in October according to data from the ONS today, driven by positive base effects mainly across oil products. Remember that falling inflation also does not mean most goods and services are cheaper, but rather prices are rising less quickly.

That rise compares to a more-than four-decade high rate above 11% reached last year. The last time inflation in the UK was lower than 3.9% was in September 2021 when it was 3.1%. Most economists had expected UK inflation to fall to 4.3% last month. As a result, UK inflation has fallen to its lowest level for more than two years, driven largely by a drop in fuel prices.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.2% in the 12 months to November 2023, down from 4.7% in October. On a monthly basis, CPIH fell by 0.1% in November 2023, compared with a rise of 0.4% in November 2022. Within that energy prices fell, but rent and council tax were higher.

Slowing price rises for food, including staples such as pasta, milk and butter, as well as for household goods were also behind the fall.

But while inflation, which is the rate prices rise at, is now well down from its peak in 2022, it is still almost double the Bank of England’s 2% target.

UK inflation remains higher than in other countries including the US and Germany but the gap is narrowing. The fall to 3.9% in November puts the UK on level footing with France, but ahead of the EU’s average rate of 3.1% and the US’s 2.1%.

The softer inflation data prompted Goldman Sachs to bring forward its expectation for the first BOE rate cut to May from June previously.

Ahead, of course the impact of potentially higher Oil prices thanks to the closure of the Suez Canal for some ships, which have driven oil prices higher, and the removal of Government support for higher power prices might turn the inflation gauge higher in the months ahead. So again, markets are ahead of themselves, it will be some time before inflation is approaching the 2% target.