| Consensus | Actual | Previous | |
|---|---|---|---|
| CPI - Y/Y | 7.5% | 8.4% | 7.3% |
Highlights
Monthly CPI data show that headline inflation rose from 7.3 percent in November to 8.4 percent in December, well above the consensus forecast of 7.5 percent. This monthly indicator measures the year-over-year change in the CPI index compared with the same month twelve months earlier.
Also published today was the quarterly CPI inflation measure which showed an increase from 7.3 percent in the three months to September to 7.8 percent in the three months to December. This quarterly indicator measures the year-over-year change in the CPI index compared with the same three-month period twelve months earlier.
Today's monthly data also show an increase in underlying price pressures in December, with the measure excluding volatile items increasing from 6.7 percent to 8.1 percent. Most categories recorded stronger year-over-year growth in December, with transport costs being the main exception. Recreation and culture prices in particular recorded a sharply stronger increase.
Officials at the Reserve Bank of Australia forecast headline inflation to have peaked around the end of 2022 and expect it will moderate over 2023. Today's data are consistent with this assessment but officials will likely be concerned by the strength of price pressures at the end of last year ahead of the next policy meeting early next month.
Also published today was the quarterly CPI inflation measure which showed an increase from 7.3 percent in the three months to September to 7.8 percent in the three months to December. This quarterly indicator measures the year-over-year change in the CPI index compared with the same three-month period twelve months earlier.
Today's monthly data also show an increase in underlying price pressures in December, with the measure excluding volatile items increasing from 6.7 percent to 8.1 percent. Most categories recorded stronger year-over-year growth in December, with transport costs being the main exception. Recreation and culture prices in particular recorded a sharply stronger increase.
Officials at the Reserve Bank of Australia forecast headline inflation to have peaked around the end of 2022 and expect it will moderate over 2023. Today's data are consistent with this assessment but officials will likely be concerned by the strength of price pressures at the end of last year ahead of the next policy meeting early next month.
Market Consensus Before Announcement
Consumer prices in December are expected to accelerate 2 tenths to a year-over-year 7.5 percent versus 7.3 percent in November.
Definition
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services. In Australia, the CPI measures the changes in the price of a fixed basket of goods and services, acquired by household consumers who are residents in the eight State/Territory capital cities. (Darwin, Perth, Sydney, Melbourne, Hobart, Brisbane, Canberra and Adelaide).
Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.
Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.
Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Australia, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.
