Australian Bond Exchange

ABE Weekly: Cool But Not Cold – Monthly CPI Eases in October

Australian Bond Exchange Weekly Update

Friday 1st December 

Key points

  • Australian monthly CPI cools faster than expected
  • No more RBA rate hikes – OECD
  • Domestic retail sales slide lower
  • New Deputy Governor appointed at the RBA  
  • Black Friday bonanza – U.S. retail sales surge

Global Cash Rates & Inflation

Australian Monthly CPI Cools Faster Than Expected 

The Consumer Price Index (CPI) Indicator increased at a slower rate than expected in October, rising 4.9% year over year vs. an expected 5.2%. It was also down from 5.6% in September.  

Housing, food and non-alcoholic beverages, and transport components experienced the largest increases, rising 6.1%, 5.3% and 5.9% respectively.  

The lower CPI signifies the first decrease in two months of consecutive increases, providing hope that the RBA may hold rates steady next week in its final decision for the year. 

Rents and Energy 

There were also significant shifts in the energy and rent components, with electricity prices increasing 3.4% in the month, up from 0.2% in September. The Australian Bureau of Statistics (ABS) attributed this increase due to the unwinding of government energy rebates in Perth. 

Likewise, rents fell by 0.4% in October following a 0.3% increase in September, but this was largely due to an increase in Commonwealth Rent Assistance which increased by 15% (for the maximum rate) in late September.  

The ABS points out that without these changes to Government rent assistance, rents would have risen by 0.7% for the month, largely unchanged from previous months and signalling no moderation in inflation. 

 

No More RBA Rate Hikes – OECD  

Expectations that the RBA has finished its hiking cycle were reinforced by the OECD this week with the organisation forecasting the cash rate will remain at 4.35%pa until the end of the third quarter of 2024.  

On the Contrary  

Former RBA Governor Phillip Lowe also made comments this week, his first since stepping down from the central bank, airing his concerns that central banks haven’t raised rates enough, warning the RBA would take credibility hit if it failed to contain inflation and return it to target by 2025. 

Domestic Retail Sales Slide Lower 

Australian retail sales fell in October by 0.2% month over month, underscoring the financial pressure which 13 rate hikes is having on household budgets.  

Clothing, footwear and personal accessory retailing fell by 1%, while household goods retailing and department stores both fell 0.6%. The only component which saw an increase was food retailing, rising by 0.5%. 

The data reveals that discretionary spending is being slashed as inflation and higher interest rates stretch family budgets.

New Deputy Governor Appointed at the RBA  

Former Bank of England Executive Director Andrew Hauser has been parachuted into the RBA as its new Deputy Governor. The appointment comes as the Reserve Bank Reforms bill to modernise and restructure the RBA was introduced to Parliament this week. 

The bill will seek to legislate the various recommendations made in the RBA review earlier this year which include strengthening the bank’s monetary policy decision-making, governance, communication, accountability and culture. 

Black Friday Bonanza – U.S Sales Surge  

U.S. data collected by Adobe Analytics reveal that Black Friday sales generated $9.8 billion in online sales, up 7.5% from a year ago. Electronics were a major growth driver with online sales up 152% compared to average daily sales in October 2023.  

Smart watches, TVs, and audio equipment were all up 577%, 484%, and 376% respectively, underscoring the persistent strength of the U.S. consumer. 

Final Thoughts  

While former and current central bankers at the RBA continue to strike a hawkish tone, the latest Australian CPI data adds further weight to the view that rates could remain on hold for next week’s cash rate decision. 

Whether the RBA decides to increase rates or not, it’s becoming increasingly apparent that we are nearing the pinnacle of this hiking cycle.  

While rates will undoubtedly remain higher for some time, it’s important to highlight that the attractive returns currently on offer within corporate fixed-income may not be around forever.  

Week Ahead 

  • RBA interest rate decision  
  • Australian GDP growth rate  
  • U.S. non-farm payrolls, unemployment and services PMI 
  • German balance of trade 

*Data accurate as at 30.11.2023 

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