This week, the December 2022 quarterly Consumer Price Index (CPI) reported the fourth consecutive quarter to show a rise greater than any seen since the introduction of GST in 2000. With the persistent inflationary pressure not yet showing any signs of slowing, further RBA rate rises are certainly on the cards.
Inflation over the December quarter rose by 1.9%. A 7.8% rise over the 12 months to December 2022 demonstrated that despite the hard and fast 3% rise in interest rates to date, inflation remains stubbornly persistent. The increase over this reporting period was higher than anticipated, as economists predicted a circa 7.5% uptick for the quarter.
The most significant price increases were, as expected, predominantly driven by travel over the holiday period:
Domestic holiday travel and accommodation +13.3%;
Electricity +8.6%;
International holiday travel and accommodation +7.6%;
New dwelling purchases by owner-occupiers +1.7%.
The continued upward trend in the rate of rising inflation presents further ammunition for the RBA to continue with increasing interest rates. The predictability of inflation is difficult, however, with the busiest holiday period now coming to an end, we would hope to see a somewhat more subdued rate of inflation in the coming months. This would be welcome news from the RBA given this is essentially what they are trying to achieve with their monetary policy decisions. According to data from CoreLogic2, the housing market is already feeling the pain from the rising interest rates, with the Sydney housing market down 13.7% for the year and Melbourne down 9.1%.
The RBA board will be meeting for their first meeting of 2023 next Tuesday. Financial markets are pricing in a 50 basis point rise to come next week. We are of the view that the RBA will react to the latest CPI data by introducing another rate rise next week.
This weekly letter was written by Brett Craig of the Aura Private Credit Team.
Sources:
1 Consumer Price Index, December 2022
2 CoreLogic, Daily Home Value Index
Important information
This information is for accredited, qualified, institutional, wholesale or sophisticated investors only and is provided by Aura Funds Management Pty Ltd (ABN 96 607 158 814, Authorised Representative No. 1233893 of Aura Capital Pty Ltd AFSL No. 366 230, ABN 48 143 700 887). Aura Funds Management Pty Ltd is the Trustee of all the Funds mentioned and a subsidiary of Aura Group Pty Ltd.
Any financial product advice given in this report is of a general nature only. The information has been provided without taking into account the investment objectives, financial situation or needs of any particular investor. Therefore, before acting on the information contained in this report you should seek professional advice and consider whether the information is appropriate in light of your objectives, financial situation and needs. Aura does not guarantee the performance of its funds, the repayment of any capital or any rate of return. Investing in any financial product is subject to investment risk including possible loss. Past performance is not a reliable indicator of future performance. Information in this report is based on the information provided to Aura by third parties that may not have been verified. Aura believes that the information is reliable but does not guarantee its accuracy or completeness. Aura is not able to give tax advice and accordingly, investors should obtain independent advice from an accountant and/or lawyer before making any decision based on the tax treatment of its investors. You must read the Fund Fact Sheet or Information Memorandum and seek professional advice before making a decision to invest in any of the funds.