Hike rates

Will higher inflation force the RBA to raise rates?

Inflation is rising everywhere except China and Japan for some reason. CPI (consumer price index) inflation had already been rising for two years, despite the pandemic and lockdowns. But, in March, we saw another jump after the start of the conflict in Ukraine. Crude oil jumped to nearly $130 after the US imposed sanctions on Russia, but has come back down and continues to trade around $100. Yet the price of everything jumped, sending inflation to unprecedented levels.

Central banks add to this madness, as they raise interest rates when inflation does not come from an economic boom, but rather from rising prices. So central banks are making mortgage payments more expensive now, while wages are stagnating. Although the Reserve Bank of Australia has yet to raise interest rates. They kept them unchanged at 0.10% at the last meeting at the beginning of the month, but could start to increase them soon. The Aussie has been trending down since the first week of this month, having lost over 500 pips so far. CPI inflation jumped higher today at 2.1% QoQ, which means more than 8% on an annualized basis.

Australian CPI Inflation Report Q1

  • Overall CPI QoQ +2.1% vs 1.7% expected
  • CPI for the fourth quarter of 2021 was 1.3%
  • Year-on-year CPI +5.1% vs. 4.6% expected
  • Previous CPI was 3.5% YoY

Heart Inflation measures

  • Truncated mean QoQ +1.4% vs 1.2%
  • The previous adjusted average CPI was 1.0%
  • Trimmed mean YoY +3.7% vs 3.4% expected
  • Past adjusted average CPI was 2.6% (RBA’s target range is 2-3%, “on average, over time”)
  • QoQ-weighted median CPI 1.0% vs. 1.1% expected
  • The previous weighted median CPI was 0.9%
  • YOY-weighted median CPI 3.2% vs. 3.3%
  • Before was 2.7%

The headline and trimmed mean exceeded consensus expectations. If that doesn’t send a rocket to the RBA and inspire it to rise next week (the meeting is May 3), I don’t know what will (the Reserve Bank of Australia used the excuse “wait for wage growth”, so that’s what they’ll say if they sit down again).

AUD/USD