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1 Dec 2023 - Hedge Clippings |01 December 2023

By: FundMonitors.com

    

Hedge Clippings | 01 December 2023

Just as the new RBA Governor Michele Bullock made her mark on monetary policy by increasing rates to 4.35%, (the thirteenth rise since May 2022) so the CPI numbers for the September quarter were released, coming in at 1.2%, and a 12 month figure of 5.4%, showing inflation continues to decline from the peak of 6.8% reached last December. The question now for Bullock will be the ongoing speed of further falls, as that seemed to be one of her primary reasons for the RBA's latest rise.

In spite of the better than expected CPI numbers, it's too early to speculate on any relief for home owners in the near term. Both Bullock and her predecessor Philip Lowe were at pains to point out that it was the stubborn persistence of inflation which was one of their primary concerns, but one also gets the impression that Lowe was prepared to tread his "narrow path" more patiently than his successor. Time will tell, but we suspect the final 2-3% reduction in inflation required to get it back to the RBA's desired range of 2-3% is going to prove the most difficult.

Drilling down into the CPI numbers shows that the RBA's efforts to date seem to be having the desired effect on discretionary spending, but not on the unavoidables: Against the overall increase of 1.2%, transport topped the list at 3.2%, followed by housing at 2.2%, and communications at 2.1%. On the other side of the ledger, discretionary items such as recreation and culture rose only 0.2%, while furnishing and household goods fell by 0.8%. The latter would seem to reinforce Gerry Harvey's recent comments that things are tough in retail land, and given the blanket discounting over "Black Friday", that might continue through to the December results in due course.

Michele Bullock's comments that interest rates were a necessary, but blunt instrument against inflation were one issue - the other being they have a variable "lag" time to take effect, in addition to some of the above items being unavoidable. Interestingly, (or possibly of self interest to Hedge Clippings) Food and Non-alcoholic Beverages brought the average down, only rising 0.6%, while Alcohol had the opposite effect, rising 1.4%! On the lagging side mortgage costs don't impact the entire population, and impact those with mortgages to different degrees.

As such we won't know if the most recent rise was a step too far, or was a "goldilocks" move - about just right - until it is either too late, or just part of history.


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