Highlights
- Australian inflation softened by more than expected in November.
- Upward trends in household spending could refuel demand-driven inflationary pressures.
- Later in the Wednesday session, Fed commentary needs consideration.
Australian Monthly CPI Indicator:
On Wednesday, Australian inflation numbers for November merited investor attention. Following retail sales numbers from Tuesday, sticky inflation could delay RBA discussions about rate cuts and leave a rate hike on the table.
However, the annual inflation rate softened from 4.9% to 4.3%. Economists forecast an inflation rate of 4.4%.
According to the ABS,
- The largest contributions to inflation came from housing and food and non-alcoholic beverages.
- Housing prices were up 6.6%, with food and non-alcoholic beverage prices rising by 4.6%.
- Alcohol and tobacco (+6.4%) and insurance and financial services (+8.8%) also contributed to the annual inflation rate.
Housing: New dwelling prices were up 5.5% year-over-year versus 4.7% in October. Rents were up 7.1% (Oct: 6.6%).
Electricity and Gas: Electricity prices increased by 10.7% (Oct: 10.1%), with gas and other household fuel prices up 12.9% (Oct: 13.0%).
Automotive Fuel: Automotive fuel prices were up 2.3% in November, down from 8.6% in October.
Despite the softer-than-expected inflation numbers, the RBA may consider household spending trends. A continued upward trend in retail sales could refuel demand-driven inflation and force the RBA to leave a rate hike on the table.
Aussie Dollar Reaction to the Monthly CPI Indicator
Before the inflation numbers, the AUD/USD fell to a low of $0.66786 before rising to a high of $0.66877.
However, in response to the inflation numbers, the AUD/USD fell to a low of $0.66828 before rising to a high of $0.66950.
On Wednesday, the AUD/USD was up 0.04% to $0.66891.
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Next Up
Later in the Wednesday session, US mortgage rates and Fed speakers will garner investor interest. Downward trends in US mortgage rates would support consumer sentiment and consumer spending. Upward trends in consumer spending could influence the timing of Fed rate cuts.
However, investors must consider Fed chatter. Fed Vice Chair John Williams is on the calendar to speak on Wednesday. Views on the US Jobs Report, inflation, and interest rates would move the dial.