Aus inflation

5.6% a glorious number, for everyone from mortgage holders on down.

Palpable relief to all beyond those betting on a strong AUD.

Now, there’s more to the story, and you can see a number of different paths, including how we overcook it, materially.

Let’s say supply chains globally healing + cumulative hikes are set to work their magic, headline down a lot, core down a bit, but moving in the right manner.

The RBA, less impressed, pushes on, keeps tightening, either explicitly with more hikes, or through jawboning + keeping the pressure up even as inflation falls back, and the feedback loops of household debt (enormous) and consumption get away from them.

That’s the number one risk. If you think housing is overvalued, and overlevered, and you think there’s a chance the RBA keeps the pressure up for “too long”, well then AGB’s of intermediate duration seem like a pretty good trade.

There’s a chance the RBA might also skip next month too. The optics wouldn’t be too great, but they might feel this data is too tricky to parse (great headline, but core, whilst trending down, remains at odds with mandate).

And then it’ll be even less clear where we are going.

So having a good mix of equity, credit, government, make sense. It might feel a bit like “oh, that’s what it collapses down to”, but yes, that is what it collapses down to, until things “break” in either direction (either sailing into the sunset, with Goldilocks at one’s back, with strong employment and tame inflation, or into the red fires of Mordor).

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