Money markets have slashed the odds of further rate increases from the central bank, but there’s a big problem with that calculus.
The immediate reaction of financial markets to Wednesday’s softer-than-expected inflation data – stocks up, bond yields down, probability of rate hikes slashed – seems a little overdone.
There are enough red flags in the numbers to keep Reserve Bank of Australia governor Michele Bullock on edge.
Yes, headline CPI eased from 4.1 per cent to 3.9 per cent, well below the RBA’s forecast of 4.8 per cent, and trimmed mean inflation for the June quarter came in at 0.8 per cent, below the market expectation for a 0.9 per cent reading.
On an annual basis, the trimmed mean is holding at 3.6 per cent – below the RBA forecast of 3.8 per cent, but well above the central bank’s target range of 2 per cent to 3 per cent.
But as Deloitte Access Economics partner Stephen Smith points out, the softer numbers we got on Wednesday were the result of lower fuel prices and the government’s temporary cut to fuel excise, which helped take the heat out of imported goods.
Source: https://www.afr.com/chanticleer/rba-won-t-ignore-inflation-red-flags-neither-should-investors-20260729-p60jng