The S&P/ASX 200 Index (ASX: XJO) has gotten a major boost today following the latest inflation figures released by the Australian Bureau of Statistics (ABS).
At the 11:30 am release today, the ABS revealed that the consumer price index (CPI) rose by 0.8% over the quarter ending 30 June 2023.
Australian inflation continues to cool
Over the twelve months to 30 June, inflation ran at 6%. At the end of the previous quarter ending 31 March, annual inflation was running at 7% (and at 1.4% for the quarter). So today’s metric indicated that the rate of inflation across the economy is falling.
During the three months to June, the ABS revealed that rents and international travel and accommodation were the most significant drivers of higher prices. Rents rose by 2.5% over the quarter, while international travel spending was up 6.2%.
Other financial services and new dwelling purchases by owner-occupiers were also noted, with rises of 2.5% and 1% respectively.
Here’s some of what Michelle Marquardt, ABS head of prices statistics, had to say on these results:
CPI inflation slowed in the June quarter, with the quarterly rise being the lowest since September 2021. While prices continued to rise for most goods and services, there were some offsetting price falls this quarter including for domestic holiday travel and accommodation and automotive fuel.
In some good news for households, annual food inflation saw its third consecutive quarter of easing price rises. By 30 June, food inflation was running at 7.5%. However, that metric is far lower than the 9.1% recorded in the December quarter last year, as well as the 8% metric we saw for the March quarter.
However, it wasn’t all good news, with the ABS revealing that rental prices were up 6.7% annually as of 30 June. That is reportedly “the largest annual rise since 2009, reflecting low vacancy rates amid a tight rental market across the country”.
Services are also increasing in price far more than goods. Annual goods inflation eased to 5.8% (down from 7.6%) in the June quarter, but services rose 6.3%. That’s up from growth of 6.1% recorded in the previous quarter.
Why is the ASX share market rising on these figures?
Investors seem to be delighted with these figures, considering the ASX 200 jumped a sizeable 0.7% right when the data was publically released.
This probably reflects the relief of the markets that inflation seems to be continuing to fall in severity. For one, high inflation is damaging to economic growth.
But investors probably assumed that if inflation came in hotter than expected we would see even more interest rate hikes from the Reserve Bank of Australia (RBA) over the rest of the year. And higher rates are usually bad news for growth assets like shares.
As such, today’s inflation figures arguably take some of the pressure off of the RBA to raise interest rates at its next meeting in August.
