Inflation drops sharply
Some very good news on inflation for Aussie policymakers today, with quarterly inflation slowing to just 0.8 per cent, the lowest level since September 2021.
That's an annualised quarterly pace of only 3.2 per cent, so it's little wonder that there was a big shift in OIS pricing, with a 4.3 per cent terminal cash rate now priced in, well down from nearer 4.5 per cent.
Trimmed mean inflation was 0.89 per cent for the quarter, also much better than expected.
Inflation in Australia peaked 6 months later than in the US and Canada due to border closures, but it's evidently following the same pattern: lower.
The monthly CPI indicator for Australia also came in lower than expected, slowing to 5.4 per cent over the year.
After half a decade of inflation being too low, we've now a significant overshoot...but it does seem to be heading back in the right direction now.
International travel and accommodation costs were up sharply in the June quarter, but these are clearly now easing (my London return airfares are down 25 per cent from the highs suddenly).
Insurance costs, as we already knew, have been horrible, up +14.2 per cent over the year.
There is still some inflation coming through from the housing component, with new dwelling costs up again and rental price inflation spiking to 6.9 per cent.
But there's also plenty of goods price deflation around, as well as falling prices in plenty of categories.
Spending in the economy is also tanking, so the job is now almost done for monetary policy, you'd think.
Markets certainly are leaning in that direction.
I don't think it's an exaggeration to say that this release was a major relief, as a higher than expected inflation number today could've created all manner of challenges.
The central bank will likely now hold interest rates for a period of time to see what transpires.
