Tag: Trimmed Mean CPI

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Australian CPI Sticky But No Rate Hike

Key Points

  • Australian CPI remains stubbornly high, with a 1.0% monthly increase in July.
  • Trimmed mean CPI was unchanged at 3.6% on a year-on-year basis.
  • However, the unemployment rate rose to 4.5% in July, suggesting the RBA is unlikely to raise rates.

Australian CPI remains stubbornly high, with the Trimmed Mean, the RBA’s favored measure, holding firm at 3.6% for the 12 months to July.

Australian CPI & Trimmed Mean CPI

Headline CPI eased to 3.5% for the 12 months, but that reflects base effects from the 1.3% increase in July last year compared to a jump of 1.0% in July 2026.

Australian CPI - Monthly & Annual

Strong CPI in July increases the motivation for another RBA rate hike, but Justin Smirk at Westpac points out that the labor market is softening.

Unemployment rose to 4.5% in July, up from 4.4% in June.

Australia: Unemployment

Monthly hours worked declined by 12.5 million hours in July to 1,998 million hours in seasonally adjusted terms, a monthly fall of 0.6%.

Australia: Aggregate Monthly Hours Worked

Conclusion

We agree with Westpac that the RBA is unlikely to raise rates:

Market services inflation is above target but a softer than expected labour market and wage outcomes reduce the likelihood of a November rate hike. We believe the RBA is likely to remain on hold for the remainder of this year.

However, credit is growing at an annual rate of 8.5% and broad money supply at 8.0%. Real GDP growth of 2.5% for the 12 months to March 2026 suggests that underlying inflation is between 5.5% and 6.0% (the spread between the two measures and growth in output/GDP).

Australia: Credit and Broad Money Growth

Our calculation of underlying inflation is more than 1.0% higher than the RBA’s current cash rate target of 4.35%.

We will likely be stuck with high inflation for a while.

Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. ~ Milton Friedman

Acknowledgments

Notes

  1. Credit and money supply represent two sides of the same coin: bank lending and bank deposits. They only tend to diverge when the RBA injects liquidity to rescue the economy from a deflationary spiral, as in 2008, 2010-2013, and 2020.
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Australian CPI Shock Ahead

Key Points

  • The Australian Consumer Price Index (CPI) rose 3.7% for the 12 months to February, down from 3.8% in January 2026.
  • The average wholesale price of diesel jumped to $2.83 per liter by Friday, March 20, compared to $1.62 in February.

The Australian Consumer Price Index (CPI) rose 3.7% for the 12 months to February, down from 3.8% in January 2026, while the Trimmed Mean held steady at 3.7%. While above the RBA’s target of 3.0%, the seasonally adjusted increase of just 0.2% in February offered a glimmer of hope that inflation is easing.

Australian CPI & Trimmed Mean CPI

A breakdown shows that most inflationary pressure comes from non-tradables (5.0%) compared to tradables (1.3%). Tradables are goods and services that are largely influenced by international trade prices, such as auto fuel, most food items, clothing, and footwear. Non-tradables such as household rents, health care, and education are mostly influenced by domestic factors.

Australian CPI: Tradables & Non-Tradables
However, we expect a sharp rise in tradables CPI in March, driven by a massive spike in crude oil prices.

Wholesale diesel prices (TGP) jumped to an average of 283.1 cents per liter by Friday, March 20, compared to an average of 162.3 cents for the week ended February 22—an increase of nearly 75% in just four weeks.

Australian Diesel TGP & Singapore Gasoil

Conclusion

We expect a steep rise in March CPI, which increases the chance of further rate increases from the RBA.

Acknowledgments

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RBA Admits Its Mistake

Key Points

  • The RBA raised its cash rate target by 25 basis points to 3.85%.
  • The consumer price index jumped to 3.8% for the 12 months to December 2025.
  • The unemployment rate fell to a seasonally-adjusted 4.1%.
  • The ASX 200 found support at 8800.

The RBA increased its cash rate target by 25 basis points to 3.85%, citing stubborn inflationary pressures and a labor market that is “a little tight.”

The trimmed mean, the RBA’s preferred measure of underlying inflation, increased slightly to 3.3% for the 12 months to December 2025, up from 3.2% in November. However, a jump in the consumer price index to 3.8% from 3.4% in November spooked the central bank into a speedy reversal of its recent accommodative monetary policy.

Australian CPI & Trimmed Mean CPI

The 0.25% rate increase comes less than 12 months after the RBA commenced rate cuts on 19 February last year. The cumulative 75-basis-point rate-cut cycle is the shallowest in the past 35 years, an acknowledgment that it cut too soon.

RBA Cash Rate Target

The seasonally adjusted unemployment rate fell to 4.1% in December from 4.3% in November, indicating a tighter labor market.

Australia: Unemployment

The S&P Global Composite PMI for Australia jumped to 55.7 in January 2025, the highest level in more than 3 years.

S&P Global Composite PMI

Also, the ANZ-Indeed job ads average increased to 4.4% in January 2026, but remains in a long-term downtrend.

Australia: Job Ads

However, aggregate monthly hours worked grew by 1% over the 12 months to December 2025, suggesting low real GDP growth in the year ahead.

Australia: Aggregate Hours Worked

Over the same 12 months, credit and broad money grew at rates of 7.6% and 7.2%, respectively. The wide margin of more than 6.0% between credit/money growth and actual hours worked suggests strong underlying inflationary pressures.

Australia: Credit and Broad Money Growth

The ASX 200 shrugged off the rate increase, respect of support at 8800 signaling another test of 9000.

ASX 200 Index

The large ASX 200 Financials index indicates increased buyer interest, with a higher Trend Index trough.

ASX 200 Financials Index

The ASX 300 Metals & Mining index continues in a strong uptrend, and recovery above 8000 would indicate a fresh advance, with a short-term target of 8750.

ASX 300 Metals & Mining Index

Conclusion

The RBA faces a dilemma.

On the one hand, economic growth is slowing. Aggregate monthly hours worked grew just 1.0% in 2025, while real GDP growth slowed to 0.4% in the third quarter.

Australian Real GDP Growth

On the other hand, inflation is rising due to high government spending, loose monetary policy, and high immigration, crush-loading the housing rental market.

Hiking rates will further slow the economy, but the central bank is already late in tightening monetary policy and will need to hike aggressively to bring inflation back under control.

For now, the stock market shrugged off the rate increase. However, the RBA will need to inflict some pain to achieve its goal.

Acknowledgments

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Australia: Monthly CPI proving “sticky”

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.

Australian CPI, Core CPI, and Trimmed Mean

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.

Australian CPI: Electricity Prices

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.

Australian CPI: Dwellings & Rent

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

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