Economic and Financial Market Update: Inflation has likely hit the peak, but how fast is the descent?
Summary:
- The December quarter inflation number came in higher than expected;
- A quarter percentage point rate hike is likely in February given the 7.8% inflation rate, rising global cash rates and a very low unemployment rate;
- The good news is that the CPI is likely to have peaked in Q4 2022;
- But a further quarter percentage point rate hike is likely to ensure that inflation returns back towards 2-3%.
Inflation Outcome
The December quarter CPI came in comfortably higher than expected (1.9% in the quarter versus consensus of 1.6%). Sometimes quarterly movements can be heavily influenced by 1 or 2 components. But the mathematical measures that aims to gauge the ‘underlying’ movements was also higher than expected (trimmed mean 1.7% v 1.5%). While inflation was higher than financial market expectations it still printed a little under RBA forecast (RBA 8% for annual % change to December 2022 v actual of 7.8%).
The headline number was at its fastest pace since March 1990. The headline number looks to have peaked, in line with what has happened in other OECD economies. The likelihood of a peak in prices is more obvious for goods than for services.
To read my full update, click here.
We live in interesting times.
Regards,
Peter Munckton - Chief Economist
