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30 Jun 2023 - Hedge Clippings | 30 June 2023



Hedge Clippings | 30 June 2023

CPI and Retail Sales Numbers throw doubt on Tuesday's RBA decision

May's CPI and Retail Sales numbers released by the ABS this week gave economists reason to reconsider where inflation really sits. However, looking through headlines to the details, the question remains: Will the numbers be sufficient to convince the RBA to hit the "pause" button next Tuesday? Even if they do hold off, it's likely to only be temporary, and in the longer term, there's little chance there'll be any meaningful relief for stressed mortgage holders for at least another year, and possibly two.

Taking a look at the Monthly CPI results first, which seasonally adjusted at 5.6% for the 12 months to May, and down from 6.8% in April, were, on the face of it, a cause for optimism. Stripping out volatile items (fruit and vegetables, fuel, holiday travel, and accommodation) the number was less encouraging at 6.4%, but still a marginal improvement on April's rise of 6.5%. Annual Trimmed Mean inflation (i.e. stripping out the extremes) was 6.1%, also down from April's figure of 6.7%. The first issue is fuel, which was the only negative number, falling 8% for the month, but as anyone who owns a motor vehicle (or at least pays at the bowser) would know, IS volatile, having risen 9.5% in the 12 months to April, and fallen 8.2% in the 12 months to March.

Of the items which significantly offset fuel's negative number, the largest increases were in every day (and therefore largely unavoidable) items, such as Bread and Cereals (+12.8%), Dairy (+15%), Food Products (11.5%), and Electricity (+14.1%), and all of which had been elevated at or around those levels for April and March. Leaving aside the question of whether suppliers and retailers of these categories are taking advantage because A) they're staples and therefore largely unavoidable purchases, or B) they can lay the blame for price rise on their suppliers or the overall consumer expectation of inflation, are the above numbers in part responsible (in conjunction with mortgage and housing) for consumer confidence and financial concerns as a whole?

Hedge Clippings rather selfishly notes that Alcohol is running below the inflationary average at 5.0%, down somewhat from the April and March numbers, but let's not go there.

Against this, Retail turnover (as reported by the ABS) for May rose 0.7%, following a flat result in April, and a rise of 0.4% in March, supported by a rise in spending on food and eating out, combined with a boost in spending on discretionary goods, as consumers took advantage of larger than usual promotional activity and sales in May, along with Mother's Day. As the ABS noted, "Food retailing has recorded a monthly rise for 16 or the last 18 months," and continued by saying that "most of the growth in food-related spending this year has been driven by rising prices."

Back to Tuesday's meeting and decision, the RBA will obviously be looking behind the headline numbers that the average consumer recalls, particularly the ongoing strength in the employment statistics, and the National Wage Case Decision increasing the minimum wage by 5.75% handed down in June, but yet to impact the numbers. As we noted at the outset, will the seasonally adjusted result of 5.6%, down from 6.8% be enough for the pause button to be pressed? Even if it is, we would expect it is far too early to budget for any reduction.

As much as the RBA is expecting inflation to improve in 2024/2025, there's no way they will risk letting persist at current levels (or worse) by acting too soon. That's assuming they can get the inflation genie back in the bottle by then, without triggering a recession. While everyone is aware of inflation, and few can avoid it, it is evident that it is only impacting the shopping habits of certain (although increasing) consumer demographics. Unfortunately, interest rates are the bluntest of instruments (and the only one) in the RBA's tool kit.

This week we held the last of our regular Webinars, with our COO Damen Purcell interviewing three guest fund managers, namely Matthew Langsford from Terra Capital, Dan Porter, from Pure Asset Management, and David Franklyn, from Argonaut Resources who discussed their approach to the opportunities and risks in the Resources Sector. Click here to view a recording (45 minutes) of the Webinar, and here to view each of the Fund's Profiles on

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