Inflation beyond the peak
Some good news, finally, for borrowers!
Inflation came in a little softer than expected for the March 2023 quarter.
Specifically, the year-on-year trimmed mean inflation figure dropped from 6.87 per cent in the December quarter to 6.57 per cent, confirming that inflation peaked in late 2022.
The weighted median figure was some way lower at 5.8 per cent, but this measure attracts less attention these days.
Notably, the monthly inflation gauge also continues to fall away sharply.
From 8.4 per cent in December, the March figure was down to 6.3 per cent, and sliding away.
Source: ABS
As Callam Pickering - Chief Economist at Indeed - and others showed, the momentum in monthly inflation has dropped off significantly:
Source: Callam Pickering, Indeed
In fact, monthly inflation has only been running at around 0.3 per cent per month in 2023.
Market pricing
A few people noted that the inflation figures were still 'hot', but overall that mostly refers to the figures over the past year, rather than what's happening now in real time.
I guess that's semantics, to some extent, but in any case financial markets have clearly eased their expectations for the trajectory of interest rates a little over the past week.
That's partly because the underlying inflation figures weren't quite as bad as feared, and partly because yet another US bank has been flirting with collapse.
First Republic saw its share price cut in half yesterday to around $8, down -95 per cent from a year ago.
Bed, Bath, and Beyond also finally collapsed into bankruptcy this week, having previously teetered on the brink for some time.
Challenges remaining
Back in Australia, while goods inflation has fallen faster than expected, there are still some areas where services inflation is likely to run hot...most notably rents.
While the growth in construction costs is now slowing, the actual rental price inflation figures continue to lag far behind the reality of asking rents for new leases (especially in Sydney).
So there's plenty more inflation to flow through to the official figures here.
The wrap
Overall, today's figures were something of a relief after some red hot inflation figures last year, with inflation officially now on the way back down.
This potentially allows the Reserve Bank to sit on its hands for the next few months should it choose to do so, by which time the global landscape will quite likely be different.
Financial markets are pricing no further interest rate hikes in this cycle in Australia, with a decent chance of a cut later in 2023.
Source: Bloomberg, via Shane Oliver, AMP (Twitter)
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On the inflation figures, James Foster provided his usual more grown-up and detailed analysis here.
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