- Trading
- Trading
- Markets
- Markets
- Products
- Forex
- Commodities
- Metals
- Indices
- Shares
- Cryptocurrencies
- Treasuries
- ETFs
- Accounts
- Accounts
- Compare our accounts
- Our spreads
- Funding & withdrawals
- Open account
- Try free demo
- Platforms & tools
- Platforms & tools
- Platforms
- Platforms
- Platforms overview
- MetaTrader 4
- MetaTrader 5
- Mobile trading platforms
- Premium trading tools
- Premium trading tools
- Tools overview
- VPS
- Genesis
- Education
- Education
- Resources
- Resources
- News & analysis
- Education hub
- Economic calendar
- Earnings announcements
- Help & support
- Help & support
- About
- About
- About GO Markets
- Our awards
- Sponsorships
- Client support
- Trading
- Trading
- Markets
- Markets
- Products
- Forex
- Commodities
- Metals
- Indices
- Shares
- Cryptocurrencies
- Treasuries
- ETFs
- Accounts
- Accounts
- Compare our accounts
- Our spreads
- Funding & withdrawals
- Open account
- Try free demo
- Platforms & tools
- Platforms & tools
- Platforms
- Platforms
- Platforms overview
- MetaTrader 4
- MetaTrader 5
- Mobile trading platforms
- Premium trading tools
- Premium trading tools
- Tools overview
- VPS
- Genesis
- Education
- Education
- Resources
- Resources
- News & analysis
- Education hub
- Economic calendar
- Earnings announcements
- Help & support
- Help & support
- About
- About
- About GO Markets
- Our awards
- Sponsorships
- Client support
- Home
- News & Analysis
- Articles
- Central Banks
- Plateauing is just another way of saying ‘stuck’
- Home
- News & Analysis
- Articles
- Central Banks
- Plateauing is just another way of saying ‘stuck’
- Fruit and vegetables: from -1.2% YoY to 3.5% YoY
- Apparel: from 0.3% YoY to 2.4% YoY, with a 4% MoM increase
- Healthcare: from 4.1% YoY to 6.1% YoY
- Fruit: +7.3% MoM
- Oils and fats: +4.6%
- Women’s garments: +4.5%
- Children’s garments: +6.8%
- Accessories: +3.6%
- Furniture: +3.3%
- International holiday travel and accommodation: +11%
News & AnalysisNews & AnalysisLet’s make things very clear – Australia’s inflation rate is plateauing in fact I would argue it’s starting to reaccelerate in areas Australia can least afford. From a trading and momentum perspective this needs explaining.
Stronger Than Expected Print
April’s CPI data exceeded expectations and was at the very top of the surveyed range. Headline CPI increased by 3.6% YoY, well ahead of the consensus of 3.3% YoY. Seasonally adjusted, the increase was even higher at 3.8% YoY. Both the headline and core CPI rose for the third consecutive month. This is a major concern.
Now, the monthly increase slowed sequentially to 0.2% MoM, annual headline inflation has risen every month in 2024. Then the RBA’s core: trimmed mean inflation rose from 4.0% to 4.1%, and the ex-volatiles measure increased from 4.1% to 4.2%, with a three-month annualized rate of 5%, there is clear daylight between the RBA’s target band of 2%-3% and the core measure of inflation
Here is the chart of the three main figures.
Monthly CPI Indicator annual moment (%)
All this makes the RBA’s ‘narrow path’ almost unattainable. A point not lost on the AUD and the ASX as seen by each one’s initial reactions.
ASX 200 v AUD/USD
Source: Refinitiv
Broadening Persistence
However, with the passage of time the data is throwing up bigger concerns – and that is the persistence of price pressures in areas that make up large parts of the CPI basket.
The expectation for a weaker April CPI print was based partly on the skew towards goods in the sampling for the first month of the quarter which have been in structural decline.
However, both goods and services contributed to the rise. Notable increases were seen in categories such as:
The upside surprise was mainly due to significant increases in volatile expenditure items, including:
These items constitute 7.5% of the CPI basket and largely explain the forecast miss.
Then you have clothing, which was expected to fall by 0.4%, rose by 4.1%. Furnishings, household equipment, and services, expected to be flat, all increased by around 0.6%. Recreation and culture, predicted to rise by 0.8%, actually went up by 2.3% in April.
This point was not lost on the Bond market with both the 3-year and 10-year Australian bonds surge on the data seen here:
Australian 3-yr and 10yr Bond reactions
Source: Refinitiv
(Blue 3-year, White 10-year)
Goods Prices Acceleration
You can certainly explain away the volatile items as being affected by the early Easter period and a correction in the March data that had these items under pressure. But that ignores the seasonal and 3- and 6-month averages which are still high.
You can also ignore the volatile international travel and accommodation sector, which accounted for much of the forecast miss, but again you can’t ignore the acceleration in goods prices where deflation was expected.
Categories such as clothing & footwear, furniture, and other major household and electronic appliances, typically measured once per quarter, suggest that goods inflation will likely remain strong. The monthly measurement of goods inflation rose by 0.9% in April, adding 0.2 percentage points to the headline monthly CPI, marking the largest increase since April last year.
Services Inflation – the ‘sticking’ point
One of the floors with the April CPI print is that is was heavy on goods prices but light on services. This will be reversed in May – services prices are expected to remain fairly sticky. These are the areas the media like to quote like dentists and hairdressers. But somewhat cheapens the services that do move the dial, rents, telecommunications, financial service and insurances etc. these are big components of the CPI basket.
Considering the upside miss in April and the anticipated persistence of services inflation in May and June, the consensus now for Q2 headline CPI has been upwardly revised to 0.9% QoQ (range of 0.6% to 1.2%), that implys an annual reading of 3.7%. For core inflation (trimmed-mean), it has been adjusted to 0.8% QoQ, implying an annual reading of 3.8% – which is in line with the RBA’s new forecast.
Implications for the RBA
The implications from this CPI print will challenge the Reserve Bank of Australia (RBA). It does pressure its assumption that the re-acceleration in inflation in Q1 would quickly revert. The unexpected strength in goods in particular coupled with sticky services suggests more persistent inflationary pressure than initially anticipated. It also shows that ‘inflation psychology’ is real – there is an argument to be made that spending has maintained on the ‘idea’ cuts would come because inflation is falling. Which has left enough demand in the economy to hold inflation up.
So, does this imply the RBA is about to raise rates?
Here is the market’s pricing on that idea.
Interestingly enough despite the hawkish risks, the likelihood of the RBA hiking rates is still tempered in the market and explains why the AUD in the hours since the CPI has moderated.
Why? Emerging signs of activity weakness.
Retail sales have been weak, corroborated by several companies reporting soft trading updates. Then there was Q1 construction work done which was released at the same time as the CPI data – significantly missed expectations (-2.9% QoQ versus the expected 0.5%) that is a huge miss.
Things the RBA will be watching over the coming week is the Fair Work Commission’s Minimum Wage decision on Monday and the Q1 GDP release next Wednesday. These events will be crucial in assessing the broader economic outlook and potential RBA policy responses. Anything that has an upside surprise should be seen as a AUD positive and an index negative.
The RBA will likely need to jawbone this result to further slow household demand for non-essential items, which is way we highlight the ‘inflation psychology’ term and the effect ‘anticipation’ is having. However, as the market and economist point out it is unlikely that the RBA will increase interest rates again, as this would disproportionately impact households already struggling under tight financial conditions.
Thus – we are stuck in this weird holding pattern and as other central banks around the world begin to cut rates it will attract flows to the AUD and its higher yields. There is a silver lining here too – as countries cut due to their respective disinflation moves and thus cheaper imports, this will benefit Australia’s inflation problem but that is a way off and the AUD will remain attractive for a while to come.
Ready to start trading?
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice.
Next Article
Where are we? What are the lessons from May?
For years we have been told that ‘value’ will have its day again. The reasoning is vast, deep value in value versus overpriced growth, pricing in risk is stretched, the ‘free money decade is over, and growth will be left holding the bag. You can take your pick as to what reasoning you use regarding this market conundrum, but the conclusion is...
June 5, 2024Read More >Previous Article
FX Analysis – USD bounces, Hot CPI fails to lift AUD, JPY softer on rising US yields
The USD saw decent strength in Wednesdays session, with The US Dollar Index (DXY) rising from an open of 104.67, pushing through the resistance at 1...
May 30, 2024Read More >We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies. You can view our cookie policy here.Manage consentPrivacy Overview
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.Cookie Duration Description AWSALBCORS 7 days This cookie is managed by Amazon Web Services and is used for load balancing. cookielawinfo-checkbox-advertisement 1 month Set by the GDPR Cookie Consent plugin, this cookie is used to record the user consent for the cookies in the "Advertisement" category . cookielawinfo-checkbox-analytics 1 month This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics". cookielawinfo-checkbox-functional 1 month The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". cookielawinfo-checkbox-necessary 1 month This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary". cookielawinfo-checkbox-others 1 month This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. cookielawinfo-checkbox-performance 1 month This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance". elementor never This cookie is used by the website's WordPress theme. It allows the website owner to implement or change the website's content in real-time. PHPSESSID session This cookie is native to PHP applications. The cookie is used to store and identify a users' unique session ID for the purpose of managing user session on the website. The cookie is a session cookies and is deleted when all the browser windows are closed. viewed_cookie_policy 1 month The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data. _GRECAPTCHA 5 months 27 days This cookie is set by Google. In addition to certain standard Google cookies, reCAPTCHA sets a necessary cookie (_GRECAPTCHA) when executed for the purpose of providing its risk analysis. __cfruid session Cloudflare sets this cookie to identify trusted web traffic. Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.Cookie Duration Description CONSENT 16 years 3 months 17 days 20 hours These cookies are set via embedded youtube-videos. They register anonymous statistical data on for example how many times the video is displayed and what settings are used for playback.No sensitive data is collected unless you log in to your google account, in that case your choices are linked with your account, for example if you click “like” on a video. SPSI session This cookie is used for setting a unique ID for the session and it collects user behaviour on the website during the session. This collected information is used for statistical purposes. vuid 2 years Vimeo installs this cookie to collect tracking information by setting a unique ID to embed videos to the website. _ga 2 years The _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors. _gat_UA-2467324-17 1 minute This is a pattern type cookie set by Google Analytics, where the pattern element on the name contains the unique identity number of the account or website it relates to. It appears to be a variation of the _gat cookie which is used to limit the amount of data recorded by Google on high traffic volume websites. _ga_9P2FTXTH5P 2 years This cookie is installed by Google Analytics. _gcl_au 3 months Provided by Google Tag Manager to experiment advertisement efficiency of websites using their services. _gid 1 day Installed by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously. _uetsid 1 day This cookies are used to collect analytical information about how visitors use the website. This information is used to compile report and improve site. Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.Cookie Duration Description IDE 1 year 24 days Google DoubleClick IDE cookies are used to store information about how the user uses the website to present them with relevant ads and according to the user profile. MUID 1 year 24 days Bing sets this cookie to recognize unique web browsers visiting Microsoft sites. This cookie is used for advertising, site analytics, and other operations. NID 6 months NID cookie, set by Google, is used for advertising purposes; to limit the number of times the user sees an ad, to mute unwanted ads, and to measure the effectiveness of ads. test_cookie 15 minutes The test_cookie is set by doubleclick.net and is used to determine if the user's browser supports cookies. VISITOR_INFO1_LIVE 5 months 27 days A cookie set by YouTube to measure bandwidth that determines whether the user gets the new or old player interface. YSC session YSC cookie is set by Youtube and is used to track the views of embedded videos on Youtube pages. yt-remote-connected-devices never YouTube sets this cookie to store the video preferences of the user using embedded YouTube video. yt-remote-device-id never YouTube sets this cookie to store the video preferences of the user using embedded YouTube video. yt.innertube::nextId never These cookies are set via embedded youtube-videos. yt.innertube::requests never These cookies are set via embedded youtube-videos. Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.Cookie Duration Description AWSALB 7 days AWSALB is a cookie generated by the Application load balancer in the Amazon Web Services. It works slightly different from AWSELB. DEMO_FORM_PCODE past No description geot_rocket_city session No description available. geot_rocket_country session No description available. geot_rocket_state session No description available. ms-uid 1 year No description available. SPSE session No description available. STYXKEY_geot_country session No description _uc_current_session 1 hour No description available. _uc_initial_landing_page 1 month No description available. _uc_last_referrer 1 month No description available. _uc_referrer 1 month No description available. _uc_visits 1 month No description available. _uetvid 1 year 24 days No description available. Please share your location to continue.
Check our help guide for more info.
- Trading