I’ll preface this by saying I’m generally a bit of a pessimist (although I prefer to call myself a realist).
With the latest quarterly data release, we’ve seen CPI drop to 4.1% YoY for the December quarter. This is obviously good news and is a 1.3% drop from the previous quarter.
On top of this, the 2023 Q4 growth is down to 0.6%, compared to the 1.9% growth in 2022 Q4.
This all looks great at face value, but if you look a little deeper, it’s not actually a good news story. I think it’s the opposite.
Since 2000, the pre-Covid average for Q4 CPI change is 0.4%, which is 0.2% less than what we’ve just had.
So while CPI is returning to a more reasonable level than the last couple of years, the quarterly change is still higher than the long term average. This is despite the rate hikes we’ve seen. Q3 last year was also higher than the long term Q3 average.
If Q1 this year is also above the long term average (0.6%), then I would say this indicates that inflation is persistent and will not return to the target range of 2-3% without further action from either the government or the RBA.
Interesting times still ahead, and I’m not holding my breath for a rate cut.
With the latest quarterly data release, we’ve seen CPI drop to 4.1% YoY for the December quarter. This is obviously good news and is a 1.3% drop from the previous quarter.
On top of this, the 2023 Q4 growth is down to 0.6%, compared to the 1.9% growth in 2022 Q4.
This all looks great at face value, but if you look a little deeper, it’s not actually a good news story. I think it’s the opposite.
Since 2000, the pre-Covid average for Q4 CPI change is 0.4%, which is 0.2% less than what we’ve just had.
So while CPI is returning to a more reasonable level than the last couple of years, the quarterly change is still higher than the long term average. This is despite the rate hikes we’ve seen. Q3 last year was also higher than the long term Q3 average.
If Q1 this year is also above the long term average (0.6%), then I would say this indicates that inflation is persistent and will not return to the target range of 2-3% without further action from either the government or the RBA.
Interesting times still ahead, and I’m not holding my breath for a rate cut.