Australian monthly CPI fell to 4.9% for the 12 months to October while trimmed mean — the RBA’s favorite measure of underlying inflation — edged down slightly, from 5.4% in September to 5.3% in October. This supports the RBA governor’s message that services inflation may prove difficult to tame.
Especially when one considers that electricity prices are measured net of government rebates and relief payments. Before adjustment, electricity prices increased by 14.0% over the past 12 months and not the 10.1% included in CPI.
Monthly rent inflation also shows a surprising fall from 7.6% for the 12 months to September — to 6.6% in October. The decline of 1.0% was again due to adjustment for Commonwealth Rent Assistance payments.
In monthly terms, Rent prices fell 0.4% in October, following a 0.3% rise in September. The fall in Rents this month was due to the remaining impact of the changes to Commonwealth Rent Assistance. From 20 September the maximum rate available for rent assistance increased by 15%, on top of the regular biannual indexation. An increase in rent assistance reduces rents for eligible tenants. Excluding the changes to rent assistance, Rents would have risen 0.7% over the month. (ABS)
Conclusion
CPI inflation is understated by adjustment for Government rebates and assistance payments. Trimmed mean CPI is proving “sticky” and may require further rate hikes from the RBA.
Acknowledgements
- ABS: Monthly Consumer Price Index Indicator, October 2023
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.