Mixed Australian monthly CPI results are unlikely to move the RBA, while announcements by President Trump suggest a more aggressive approach on tariffs early in his term and ahead of any tax changes.
The ABS' monthly CPI estimate rose an annual +2.1% in October for the second consecutive month, less than the +2.3% consensus estimate and the lowest annual level reached since July 2021.
The top contributors to the annual movement at the group level were Food and non-alcoholic beverages (+3.3%), Recreation and culture (+4.3%), and Alcohol and tobacco (+6.0%).
Annual CPI inflation has fallen from +3.8% in June due, in part, due to significant price falls in Electricity and Automotive fuel.
Electricity fell -35.6% in the 12 months to October, which is the largest annual fall in the electricity series ever recorded in the CPI.
Automotive fuel prices fell -11.5% yoy after several recent monthly falls in price.
Annual trimmed mean inflation was +3.5%, up from +3.2% in September and similar to where it was in August.
The CPI ex-volatile items and holiday travel was +2.4% yoy in October, down from +2.7% yoy in September.
Housing rose +0.2% yoy in October, down from +1.6% yoy in September. The large fall in electricity prices mostly offset higher rents and new dwelling prices. Michelle Marquardt, ABS head of prices statistics, said: “The annual rise in Rents of +6.7%t was partly offset by an increase in Commonwealth Rent Assistance (CRA). The maximum rate available for CRA rose by +10% in September 2024 on top of the usual CPI indexation on 20 March and 20 September. Without the CRA changes, Rents would have risen by +8.1% in the 12 months to October”.
Last night, the US president-elect announced via his Truth Social platform that he will immediately apply a +25% tariff to all Mexican and Canadian imports and raise tariffs on Chinese imports by +10%. Mr Trump has also nominated several people who served in his first term to trade positions in the incoming cabinet.
Chinese Industrial profits were down -10.0% yoy in October, an improvement from -27.1% in September but largely due to base effects.
S&P/ASX200 8,409 +0.6%, AUDUSD 0.6467 -0.1%, Aus 10yr 4.43% -1bp
Fin-X Wealth view
The monthly CPI estimate is unlikely to move the RBA. The Board will continue to look through the electricity subsidies and likely place more weight on underlying inflation than the drop in energy prices. The monthly report has also seen some significant discrepancies with the full quarterly series, reducing its persuasiveness. Market pricing suggests the first RBA rate cut will arrive in April or May.
The overnight announcements of tariffs are much more significant. The postings below suggest that President Trump is likely to raise tariffs first and negotiate second. This implies that households would be hit with price increases before tax cuts are passed by Congress and have time to take effect.
This raises the chances of tipping the US economy into a recession as lower-income household purchasing power evaporates. We expect buying demand to be front-loaded, providing a temporary spike in goods demand and manufacturing production. There was some evidence of this already occurring in the flash PMIs last Friday and it seems likely to be repeated in the early December ISM surveys.
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