Inflation still hot in November
Having tipped 7.3 per cent in September - and then dipped to 6.9 per cent in October - the newly minted ABS monthly inflation indicator was back up at 7.3 per cent in November.
Westpac had anticipated 7.4 per cent, and the median market forecast was 7.2 per cent...so this result split the difference, and - after the initial excitement - in the end didn't change market expectations much.
Source: ABS
Inflation is thought to be set to peak in the fourth quarter, but most likely some way below the 8 per cent level that the Reserve Bank had previously predicted.
Source: ABS
Overall, this was a somewhat hotter result than expected, but likely won't much change the view that headline inflation will peak at around 7½ per cent in the fourth quarter, with the trimmed mean reading peaking somewhere in the 6s.
Dr. Joiner on the Twitter with the relevant graphs:
Looking further ahead, there are many global indicators pointing to a forthcoming decline in inflation, from fertiliser and food prices, to fuel and freight rates.
The US December CPI figures are due out tomorrow, and may show show a flat (or possibly slightly negative) headline result for the month, with annual inflation expected by markets to drop from 7.1 per cent to around 6½ per cent.
Walking the tightrope
The Reserve Bank of Australia is walking a tightrope from here, likely continuing to hike interest rates in 25 basis points increments until the data conclusively show that inflation is falling.
In real time, we can already see this beginning to happen in housing construction.
Indeed, the Housing Industry Association has already stated more than once that interest rates have gone too high too quickly, and this is set to cripple new housing supply, seeing building approvals heading towards decade lows, while rising mortgage rates for landlords are wreaking havoc in the rental market.
In Noosa our community notice boards are now dominated by new arrivals into the country trying in vain to find a room to rent (ironically tight lending policies for landlords are now contributing to rapid rental price inflation).
Economist Tom Devitt also highlights how it wasn't low interest rates which drive inflation higher in the first place, and as such interest rates won't be the sole cure either.
The spike in inflation was largely driven by stimulus packages such as the giant HomeBuilder and major renovation packages, in concert with major supply chain congestion...both of which are now easing.
Retail turnover was up by 1.4 per cent in November - also hotter than expected - but it looks as though the seasonal adjustment is grappling to contend with the growing population of Black Friday sales, and retail trade volumes are likely to soften considerably in 2023.
Source: ABS, Alex Joiner Twitter
At first blush, then, a somewhat ugly inflation report, but in the event it wasn't market moving and in fact bond yields have declined a little over the day and overnight, with Australia's 3-year bond yield trading back down at 3.24 per cent.
The Aussie dollar was broadly unchanged at 69.1 US cents.
