| Consensus | Actual | Previous | |
|---|---|---|---|
| CPI - Y/Y | 5.2% | 4.9% | 5.6% |
Highlights
Monthly CPI data show that headline inflation fell from 5.6 percent in September to 4.9 percent in October, a fall sharper than the consensus forecast for a decline to 5.2 percent. This fall follows two consecutive increases in monthly headline inflation and takes inflation closer to the Reserve Bank of Australia's target range of 2.0 percent to 3.0 percent. This monthly indicator measures the year-over-year change in the CPI index compared with the same month twelve months earlier.
RBA officials increased policy rates at their most recent meeting earlier this month after they had left them on hold for the previous four months. Officials noted that"inflation has passed its peak but is still too high", revised up their near-term forecasts, and highlighted risks that inflation will take longer to return to the target range.
The fall in headline inflation in October was largely driven by a sharp deceleration in fuel prices. These rose 8.6 percent on the year in October after increasing 19.7 percent in September. Housing inflation also slowed from 7.2 percent to 6.1 percent, largely reflecting rent assistance provided to low-income households, while clothing prices fell at a faster pace. This was partly offset by an increase in food inflation from 4.7 percent to 5.3 percent.
Today's data also show a moderation in underlying price pressures in October. The measure of inflation that excludes volatile items including fuel - and holiday travel fell from 5.5 percent in September to 5.1 percent in October, while the monthly trimmed mean measure eased from 5.4 percent to 5.3 percent. With data published earlier in the week showing a fall in retail sales, today's data showing that underlying price pressures have slowed may be enough to convince officials to leave rates on hold at their meeting next week.
RBA officials increased policy rates at their most recent meeting earlier this month after they had left them on hold for the previous four months. Officials noted that"inflation has passed its peak but is still too high", revised up their near-term forecasts, and highlighted risks that inflation will take longer to return to the target range.
The fall in headline inflation in October was largely driven by a sharp deceleration in fuel prices. These rose 8.6 percent on the year in October after increasing 19.7 percent in September. Housing inflation also slowed from 7.2 percent to 6.1 percent, largely reflecting rent assistance provided to low-income households, while clothing prices fell at a faster pace. This was partly offset by an increase in food inflation from 4.7 percent to 5.3 percent.
Today's data also show a moderation in underlying price pressures in October. The measure of inflation that excludes volatile items including fuel - and holiday travel fell from 5.5 percent in September to 5.1 percent in October, while the monthly trimmed mean measure eased from 5.4 percent to 5.3 percent. With data published earlier in the week showing a fall in retail sales, today's data showing that underlying price pressures have slowed may be enough to convince officials to leave rates on hold at their meeting next week.
Market Consensus Before Announcement
Consumer prices in October are expected to ease to a year-over-year increase of 5.2 percent versus 5.6 percent in September and 5.2 percent in August.
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.
