CPI Data Signal Growing Domestic Price Pressures, RBA To Hike

Australia’s Q4 and December CPI data printed significantly stronger than expected and showed that while Q4 was under the RBA’s 8% forecast, the final month of the year was higher. The details show growing domestically-driven inflation with the more global components stabilising. This data is concerning and has all but confirmed a February rate hike and probably a March one too (the February 22 WPI will be key here).

• Q4 CPI rose 1.9% q/q and 7.8% y/y, the highest since 1990, after 1.8% and 7.3% in Q3 driven by holiday travel and electricity (+8.6%). The ABS noted that this was the fourth consecutive quarter to record an increase higher than any seen since the GST was introduced in 2000. December CPI surged to 8.4% from 7.3% driven by housing, food and recreation. Inflation was still rising going into the new year.
• The trimmed mean rose at a slightly slower quarterly pace of 1.7% q/q but increased to 6.9% y/y from 6.1%, a new series high and above the RBA’s forecast. The monthly series has been suspended but the CPI ex volatile items surged to 8.1% y/y in December from 6.7%.
• Services inflation rose 5.5% y/y from 4.1%, the highest since 2008. This is an indicator of domestic-price pressures, which appear to have gathered momentum. Non-tradeables, another domestic measure, rose 2.1% q/q and 7.4% y/y from 6.5% in Q3. Non-tradeables was steady at 8.7% y/y.
• Discretionary inflation reached a new high of 7.1%, while non-discretionary was steady at 8.4%, which is likely to weigh on consumption going forward.

Source: MNI - Market News/Refinitiv/ABS

Source: MNI - Market News/Refinitiv/ABS