Join our daily newsletter At The Bell to receive exclusive market insights
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.
Join the discussion: See what’s trending right now on HotCopper, Australia’s largest stock forum, and be part of the conversations that move the markets.
The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.
