Aus inflation

The Australian CPI print is out.

A little less dramatic than anticipated, with most measures below expectation. Central banks, however, are not inclined to go for nuance just now, so a small undershoot is unlikely to alter the RBA’s agenda meaningfully.

The QoQ measures were more in line with consensus and showed a meaningful acceleration. Given the impact of rents has persistence, and advertised rents have been rising, next quarter’s print will likely be even higher.

That’s the key bit, and it is why the RBA is unlikely to be “dovish at the margin” based on today. There is persistent, broadening inflation, which is what trimmed mean > expectation vs headline < expectation is telling you.

That said, we won’t have to wait long; the RBA meets next Tuesday. We continue to expect 75 and think brokers lowering their call today have probably got it wrong.

Note, despite identifying this possible disconnect, we, at the DAA level, don’t generally attempt to trade it. Here, we are talking about half a cent on the AUD or 6 bps on the bond yield. Those are, generally speaking, not large enough, without using leverage, to matter overmuch to a DAA fund, and we leave it to the underlying managers, who have the size and networks and nimbleness to make intra-day trades more potentially profitable.

The market sure likes it, with the AUD down and rate sensitives (e.g. REITs) up.

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