Feeling the pinch: Pedestrians outside the Westfield shopping mall in Sydney, New South Wales. In the last quarter of 2022, Australia’s consumer price index rose by 7.8% from a year earlier, exceeding economists’ estimates. — Bloomberg
SYDNEY: In the final three months of 2022, Australian inflation accelerated at the fastest pace in 32 years, exceeding forecasts and prompting money markets to price in an interest rate hike at the central bank meeting next month.
Bond yields and the currency gained as the consumer price index advanced 7.8% from a year earlier, exceeding economists’ 7.6% estimate, official data showed yesterday. The result indicates that inflation remains very strong even after three percentage points of rate increases between May and December.
While the headline number came in slightly below the Reserve Bank of Australia’s (RBA) forecast of 8%, it showed Australia is lagging behind its developed-world counterparts. In a number of economies, the inflation impulse has begun to ease, with encouraging signs from producer prices to shipping costs.
“Inflation has probably peaked but remains far too high,” said Su-Lin Ong, head of fixed-income strategy at Royal Bank of Canada.
“The data almost certainly seals the case for a 25-basis-point (bps) hike in February, with a final 25-bps hike in March to see the terminal at 3.6%.”
Traders similarly responded to the figures by pricing in a hike at the Feb 7 meeting, with swaps signalling better than 90% odds of a quarter-point move to 3.35%. The currency also touched its highest level since August, and government bond yields advanced following the release.
In contrast, Australian stocks erased gains and fell as much as 0.5%, trailing peers in the region.
Core inflation, a measure preferred by the RBA, accelerated to 6.9% in the last quarter from a year earlier, exceeding economists’ forecast of 6.5%.
That reading of the trimmed-mean measure was the strongest since the series began in 2003.
Australia’s inflation release came a couple of hours after New Zealand reported consumer price index (CPI) data that potentially opened the door to less aggressive hikes.
The RBA raised its cash rate to 3.1% in December and said it will do “what is necessary” to bring inflation back to its 2% to 3% target. It forecast that the fourth quarter would be the peak for the CPI.
Globally, early evidence of easing price pressures has driven expectations that central banks are near the end of their tightening cycle, or at least that super-sized hikes are now a thing of the past.
Markets were pricing in one final hike from the Bank of Canada, while the US Federal Reserve is widley expected to downshift to a quarter-point move at its meeting scheduled for next week.
In Australia, while inflation remains high, timely data on the economy showed rising rates and input costs are putting pressure on businesses and households.
“The outlook for monetary policy is complicated right now,” said Callam Pickering, economist at global job site Indeed Inc.
“Monetary policy hits the economy with a considerable lag, and we’ve barely begun to see the impact of the rate hikes that began in May last year.” — Bloomberg
