Are there signs of inflation having peaked?

Team Veye | 26-Mar-2023 Are there signs of inflation having peaked

With the monthly Consumer Price Index (CPI) coming in at 6.8% in the year to February, as per the latest monthly data released by the ABS, are early signs emerging of inflation having peaked?

Head of prices statistics at the ABS, Michelle Marquardt, specified that this month’s annual increase of 6.8% is lower than the 7.4% annual rise reported in January.

Although it marked the second consecutive month of lower annual inflation, from the peak of 8.4% in December 2022, however, with RBA aiming for an inflation target of between 2-3%, it was still well above the target. 

Though, the IMF has slightly downgraded its growth expectations for Australia, with growth slowing from 3.6% in 2022 to an expected 1.6% in 2023, despite the growth slowing down, the OECD believes inflation in Australia will be higher for longer. It is forecasting inflation this year to average 5 per cent, a 0.5 percentage point increase on its November forecasts, with prices to surge another 2.8 per cent in 2024.

The CPI coming lower than expectations of the markets, at about 7.2%, gives rise to hopes that RBA may pause its rates when it meets this week. In the March meeting also, members had assented to reconsider the case for a pause at the following meeting. They were of the view that pausing would allow additional time to reassess the outlook for the economy, though some banks have an otherwise opinion and expect RBA to hike its key interest rate for eleventh consecutive time.

Opinions are on a knife edge and whether a still high inflation and strong employment data throws a spanner in the expectations remains anybody’s guess.


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