Aus inflation

Progress continues to look a touch uninspired, on the Aussie inflation front. 3.6% YoY, and higher on the ex volatiles at 4.1% YoY (look to the series with the word “Monthly CPI”, below, 3rd row). Given the budget (and state budgets) it is possible the RBA has to get off pause. I agree that the consumer is struggling, but handouts…

…offsets, rebates and subsidies are not helping here, and only prolong the eventual required adjustment.

The market did not like it, with movements corresponding to a negative monetary shock (i.e. a tightening) given lower risky assets (stocks), lower risky assets with duration (property), yields up and the dollar at least initially up.

Still, from the internet, came some cause for optimism. The inflation series we are talking about, the monthly indicator, has its critics, who dispute what it is we are seeing.

The “ex volatiles” series contains travel, which seems to be roughly twice as large/volatile as the “food and energy” we are excluding (the traditional items to exclude on volatility grounds). The below graph helps convey the idea, and note this is contribution, in other words, imagine travel adding 1% to the monthly number – bigger than some monthly prints just on their own!

That online post goes on to take the series apart from a regression perspective, quite mathematical, and makes the broad point that it is essentially useless.

Justin Fabo (ex RBA) also had this graphic, which is driving at essentially the same point. Inflation, whilst still a bit high, is no disaster, based on today.

Given that today a solid enough down day for stocks and bonds, that is cause for some relief.

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