Quicknote: Aussie inflation numbers have a lag to them

The Aussie inflation numbers are worse than expected, with the trimmed mean rising 1.7% compared to the previous quarter. This compares with market expectations of 1.5%. It’s not the end of the world, but it is a little worrying that Aussie inflation hasn’t yet started to trend lower. We believe it will in the next few months.

It’s also encouraging to see that bond yields only rose slightly, meaning the inflation peak narrative is still in place. Very important.

Much like Europe, Aussie inflation has a lag in the numbers because of the inherent difference in the labour market. Recent rises are now just starting to flow through, and the rising Aussie dollar is going to assist in capping imported inflation. We’re just going to have to wait for that to flow through.

Bottom line: We continue to believe that the RBA will move again by 25 basis points in February, but then sit and wait to see what transpires in the following months.

March is a 50/50 chance, but we think the RBA will be cautious about the lagging impact of rising borrowing costs on households. If we continue to see better inflation numbers in the US & UK, that might encourage the RBA to hold off in March.