Inflation easing
US inflation came in at 0.4 per cent for the month of April 2023, and declined to 4.9 per cent over the year to April.
Importantly, shelter - which makes up about a quarter of the US CPI basket - is finally rolling over.
Rents are reported with a huge lag, and have contributed significantly to sticky inflation, but there's a lot of evidence that rents are now falling across many US cities.
Gasoline prices were up last month, but that gain will most probably reverse later.
Having peaked at 9 per cent in June 2022, inflation has now fallen to 4.9 per cent, and looking ahead is likely to revert lower again, bringing to an end the concerns about persistently high inflation.
Source: Bureau of Labor Statistics
Annualising the last two months of figures only points to inflation of around 3 per cent.
Global shipping rates have dropped by around 90 per cent from their highs, while in Europe wholesale gas and electricity prices have continued to decline to around two-year lows as supply and demand issues have righted themselves.
Consumer pressures in Aus
Demand in the US economy has remained remarkably robust over the past year, but it's worth noting that the setup over there is totally different from what we experience in the Antipodes.
Most US borrowers use 30-year fixed mortgage rates, so while higher interest rates have frozen many homebuyers out of the market, homeowners haven't been impacted nearly so much.
In Australia almost al borrowers are on variable rates or short-term fixed rate mortgages, so the interest rate hikes here will have a much faster and more direct impact on consumer spending.
It's a key feature of the resilient Aussie economy, not a bug.
In fact, the consumer slowdown is already happening, with Westpac reporting a sharp deterioration in consumer demand in its card tracker data:
Source: Westpac
Major banks reported over the past week that a high volume of fixed rate mortgages are still due to reset to much higher variable rates over the next 3 to 6 months, so there's still a big chunk of tightening in the post for Australia...even with no further rate hikes.
This accounts for why markets are pricing lower interest rates over the next year or two in Australia.
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Rental listings...up!
Rents make up a much smaller component of Australia's inflation basket.
Interestingly, SQM Research is set to report an increase in rental listings soon, albeit with listings rising fastest in Hobart and many of the regional cities, rather than in Sydney and Melbourne.
This comes in spite of record high immigration levels.
Source: SQM Research
Rental listings are trending higher in Hobart, Canberra, Wollongong, Blue Mountains, Mornington Peninsula, and Sunshine Coast.
