ASX200 dives as inflation clocks in at 4% – higher than 3.8% consensus

The Australian Bureau of Statistics (ABS) has released the latest Consumer Price Index (CPI) inflation data, showing local inflation has hit 4%.

This comes as expectations were tipping a consensus call of 3.8%. The ASX200 immediately sunk sharply downwards.

To remind, Australian unemployment currently sits at 4% – after reversing from 4.1% in April. Still, Australia’s labour market remains historically tight.

Orthodox economic theory states lower unemployment portends higher inflation as more people have the money and mobility to spend.

The RBA maintains that inflation won’t come down comfortably until 2026. Last year, it had been previously saying late 2025.

Making matters more complicated, the pace of Australian disinflation has actually stalled through 2024.

That has traders at Morgan Stanley nervous, who suspect the August RBA meeting could see the national interest rate hiked further – not cut. That would likely be a disaster for already depressed sentiment in Australia wholemeal – especially seeing as the RBA has flagged indebted homeowners are being forced to sell.

A ‘collapse’ in house prices has long been feared in Australia, a country where property investment is the bread and butter of those who have – and a reasonable sore point for those who have not.

But through the COVID era, services inflation – mainly rents, and home prices – have been instrumental in keeping Australian inflation higher than where the RBA would like it.

Crude oil prices have also produced pressure across the last few years, with higher fuel costs impacting every single part of any country’s economy.

While relief on major energy benchmark commodities is now the quo (compared to recent history,) energy costs remain a volatile aspect on headline inflation reads.