Aussie inflation seemingly hit a 3 year low. So why’s the ASX200 red?

Headline inflation in Australia has fallen to 2.8% – its lowest in three years – and that officially takes us into the RBA’s 2-3% inflation target band.

So that’s good news, right? Prima facie yes. But it’s a bit more complicated than that.

And the local bourse is reflecting that investors, broadly, understand the story to be more complicated than what a headline 2.8% CPI read otherwise suggests.

As at 12.10pm Sydney time, despite this apparent huge success, the ASX200 still remains in the red, down -0.40%.

The market started climbing somewhat right on cue at 11.30am when the data was released by the ABS, but then quickly thereafter found comfort down three tenths of a percent.

So what’s going on?

Not all inflation data equal

Well, everyday traders (and those who simply prefer good news to bad news) like to look at headline inflation – but economists and investment analysts are more likely to look at core inflation.

Core inflation is really an Americanism; in Australia, it’s called Trimmed Mean Inflation (TMI). The purpose of the TMI data is to give a “truer” idea of “real” Australian economic inflation by getting rid of volatile items that rise and fall in price dramatically.

And TMI – as opposed to the CPI – is actually higher for Q3 in Wednesday’s data, coming in at 3.5%. That’s down from 3.9% in Q2 of 2024 – a far less dramatic drop than the decline from 3.8% to 2.8% in the headline CPI suggests.

So what does that mean?

Well, just look at the ASX200.

It suggests we shouldn’t be getting too excited.

That excitement would, of course, relate to the expected pace of RBA rate cuts – and our central bank has been not-so-gently reminding the nation for years it’s not going to start cutting rates until 2025.

That lines up with analysis from VanEck staffers who don’t see the CPI data accelerating the RBA one iota. (Don’t forget, housing remains a huge factor of Australian inflation and the RBA is unable to magically boost supply.)

“The RBA will largely ignore the impacts of subsidies when weighing up interest rates next week,” Oxford Economics’ macro expert Sean Langcake said.

“Their focus will be on underlying inflation, which is still too high for them to start cutting rates.

“Our view remains that rates will be on hold until Q2 2025.”

Bummer – but then again, the RBA has been telling us that non-stop.

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