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Hopes of pause in interest rate hikes as inflation beast shows signs of slowing

Business

The Reserve Bank’s aggressive interest rate hikes may have started to work with official data showing a sharp deceleration in inflation.

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The slowdown provided a glimmer of hope that the bank’s board would pause its rate hikes at next week’s meeting.

Consumer price index data released today showed annual CPI ran at 6.9 per cent in October, which was well below the consensus of 7.6 per cent. The annual trimmed mean CPI was 5.3 per cent against expectations of 5.7 per cent.

That led to a market rally of about 50 points on the ASX as investors saw the inflation data as a pointer to the RBA easing back. The bond market however remained firmly of the view that rates would continue to rise.

At least one economist, Coolibah Capital’s Christopher Joye, believed the lower-than-expected increase in inflation meant the RBA should pause its rate hikes in December.

“If they hike in December they will struggle to do much more,” Joye said.

IFM’s Alex Joiner said that taking a 3-month annualised rate on the monthly CPI results would “suggest the worst of inflation might be behind us”.

AMP Capital’s Shane Oliver said the data needed to be interpreted with caution because it excluded energy.

“It probably won’t stop RBA hiking next week, but will keep them at 0.25 per cent,” Oliver said.

ANZ said the deceleration in inflation posed a dilemma for the RBA and that the board “consider the possibility of a pause in December”.

The ANZ said the data “will likely see the board next week consider the possibility of pausing in December”.

However, there was a “natural pause” coming in January because the board does not meet during the month so ANZ’s Catherine Birch and Felicity Emmet said it still expected a .25 per cent rate hike in December.

“We still expect quarterly CPI to accelerate in the fourth quarter given the inflationary effects of flooding and the delayed increase in utilities due to State Government credits.” ANZ said.

The big contributors to inflation in October were fruit and vegetables (+9.4 per cent), new dwellings (+20.4 per cent) and automotive fuels (+11.8 per cent).

The ABS said the hike in new dwelling costs was related to the high levels if building construction and ongoing shortages in labour and materials.

The ABS also released building approval data which shows up as a major problem, particularly in Queensland where it was down 19 per cent.

 

 

 

 

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