The Australian share market has closed marginally lower, as inflation data from the Bureau of Statistics shows it has fallen from its December quarter peak of 7.8 per cent, down to 7 per cent.
Wall Street suffered its biggest falls in a month, as fears of a banking crisis resurfaced, leading to shares of First Republic Bank plunging 49 per cent overnight.
See how the trading day unfolded on our blog.
Disclaimer: this blog is not intended as investment advice.
Key events
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Live updates
Market snapshot at 4:20pm AEST
By David Chau
Wall Street on track to recover tomorrow
By David Chau
That's a wrap for today's market blog!
Before I go, let's take a look at what tomorrow's trading session may bring.
US stock futures bounced as buybacks and better-than-expected earnings boosted tech giants in after-hours trade.
Nasdaq futures were up 1.3% and S&P 500 futures gained 0.4% after Microsoft reported a strong quarterly profit, and Google's parent company, Alphabet, announced a share buyback.
Facebook parent Meta Platforms will report its earnings on Wednesday (local time), with U.S. markets on edge over softening US data and fresh regional bank jitters.
Overnight, First Republic Bank shares plunged 49% to a reord low after the bank disclosed a $US100 billion plunge in deposits.
The US dollar rose broadly against most major currencies.
"Clearly, the fear factor drove [US] dollar gains," said analysts at Mizuho.
"The fear of contagion and the repeated mantra of isolated incidents has inevitably led to 'shy' and yield seeking deposits seeking to bank with the US Treasury," they said, referring to the broad rally in bonds.
Miners drag ASX lower, Aussie dollar sinks on increased odds of RBA leaving rates on hold
By David Chau
The local share market has ended its day slightly lower, as the latest inflation data has seemingly increased the odds the Reserve Bank will leave interest rates unchanged next week.
Money markets are now betting there is a 93% chance the RBA board will leave its cash rate target on hold in May.
The ASX 200 closed 0.1% lower at 7,316 points (an improvement over its 0.5% loss when the trading day began).
Six out of every 10 stocks finished in negative territory, with energy (+0.8%) and industrials (+0.5%) being the best performing sectors.
Conversely, the materials sector (-0.8%) was the biggest drag on the market, as iron ore prices continued to drop on China's plan to boost domestic production.
Iron ore was selling for around $US102 a tonne, its lowest level since early December.
BHP and Fortescue Metals fell by around 0.4% each, while Rio Tinto shares dropped 1.1%.
Also, Mineral Resources had plunged 9.7 per cent to a six-month low of $72.59, after the company downgraded guidance for its mining services business and reported weaker than expected third-quarter lithium sales.
However, gold miners were the best performing stocks, including Gold Road Resources (+4.7%), Evolution Mining (+3.5%) and Silver Lake Resources (+2%)
Synlait Milk plunged 26.5% to a record low of $1.44 after the New Zealand milk company announced it was now expecting a $5 million full-year loss, rather than a $5m profit (after a key customer - believed to be US nutrition giant Abbott - had reduced its orders).
In currency markets, the Australian dollar fell to a near six-week low of 66.1 US cents (from 66.76 US cents at Monday's ASX close).
Major banks CBA, ANZ, NAB and others have competing views on the Reserve Bank's next move
By David Chau
Economists from Australia's largest banks and financial institutions have now digested the latest ABS inflation data, and they've offered some competing views.
Commonwealth Bank economists believe the Reserve Bank will "deliver one final 25bp [basis point] hike at next week’s meeting, taking the cash rate to 3.85%."
Meanwhile, ANZ's economics team says:
"Trimmed mean inflation and the monthly CPI indicator were both lower than expected, supporting our view that the RBA will keep the cash rate at 3.6% in May."
NAB, on the other hand, believes "the cash rate at 3.6% will be the peak and the RBA will leave the cash rate on hold for an extended period into 2024". So it expects the Reserve Bank to leave rates on hold next week.
AMP Capital's deputy chief economist Diana Mousina says:
"We think the slowing in inflation momentum confirmed in todays data is enough to allow the RBA to keep the cash rate unchanged at 3.6% at next weeks board meeting.
"But it is a close call. The level of inflation is still high and the RBA may be concerned about future rental inflation and a potential public sector wage breakout so a 0.25% rate rise can’t be completely ruled out next week."
Deutsche Bank's economist Phil Odonaghoe has an interesting view. He was previously expecting a rate hike next week, but now thinks the RBA will lift rates in June:
"Australia's Q1 CPI was softer than the RBA expected with trimmed mean - the RBA's preferred measure of core inflation - rising 1.2% qoq [quarter on quarter] against the RBA's pick at 1.4%qoq.
"In light of that, we now expect the RBA to extend its pause for now and leave the cash rate unchanged at the May meeting. Previously, we had expected a 25bp hike."
"Even though the Q1 CPI was materially softer than the RBA expected, we are not yet convinced the RBA is done for this hiking cycle.
"At this stage, we push our 25bp rate hike call back to the June meeting, at which point the RBA will have updated wages data for Q1 which could easily unwind the 'better' news in today's CPI.
"Our terminal rate remains at 4.1%, which is still two more 25bp hikes away. For now, we have those hikes coming in June (pushed back from May) and another in August."
Market snapshot at 3:15pm AEST
By David Chau
What does high inflation mean for the Budget?
By David Chau
It's only a matter of weeks before the Federal Budget is unveiled, and today's inflation figures won't make the government's job any easier.
"It shows the federal government has no room to move at all," EY's chief economist Cherelle Murphy said.
"It can't give any cost of living relief, which isn't offset by reductions in spending or higher taxes elsewhere.
"It must try and continue to bring down the size of the budget deficit.
"To not do so will leave it with a structural budget deficit which means we have no flexibility if there is another shock, and we have to bring it down because there is so much inflation in the economy.
We can't have fiscal policy adding to inflation whilst monetary policy is trying to take it away.
The federal government doesn'thave a lot to play with here.
And no doubt wherever it puts in place additional spending, we will be looking for equivalent reductions in spending elsewhere or higher taxes."
For more on this, you can watch her interview with finance reporter Sue Lannin on the ABC News Channel here:
Shadow treasurer says inflation is 'running rampant' despite falling to 7pc
By Kate Ainsworth
Shadow treasurer Angus Taylor was speaking in Canberra a short time ago about the inflation data released by the ABS earlier today.
He says inflation is "running rampant" at 7%, and is causing pain for households and businesses.
He also took aim at Treasurer Jim Chalmers, who described the data as "moderating", after inflation fell to 7% from its December quarter level of 7.8%.
"The truth of the matter is what we saw in the data today, is inflation increases or inflation strength in our broad range of goods and services," he said.
"It is almost across the board. And that is what we're seeing on the ground and that is what Australians seeing every day. It is not confined to specific supply chains, this is rampant inflation right across our economy.
"There is another opportunity in the upcoming budget to deal with this head on, another opportunity for this government to deal with it head-on.
"The starting point of that budget is to recognise that inflation comes from Canberra ... the decisions that this government makes in this budget and throughout the course of the upcoming year, and the past year for that matter, has an impact on the inflation and interest rates that all Australians are facing."
A question about the inflation target
By Gareth Hutchens
We keep hearing that the RBA targets 2-3% interest. However this is never questioned - its a mantra that keeps repeating without discussion. Why is this? Put another way, if we maintained 7% interest for a few years, and allowed wages to grow with it, the property crisis might be lessened as wages would then have a chance at catching up with property values (assuming we wanted this of course and put in policies that allowed such things to occur). Hell, we could even start thinking about paying down the national debt too. Why are these options never considered? Should the reserve bank consider a new inflation target? Regards, Kevin
- Kevin
Sorry Kevin, but I'd have to disagree with you in some way.
The Reserve Bank's 2-3% target is often questioned, to varying degrees.
And it was most recently questioned by the RBA Review, which released its report last week.
The report recommended keeping the 2-3% target, arguing it's served Australia well for 30 years.
It also recommended that the RBA board should start aiming for the midpoint of that target band "to maximise the chance that the target is met and best anchor inflation expectations."
So, it's recommended a tweak to improve things.
But then, the analytical starting point for the RBA Review seemed to be that the current framework has been working well and it doesn't need a radical overhaul.
So in that regard you'd be right - there was no great philosophical discussion about the 2-3% target itself.
Here's the link to the report:
Economists divided on whether RBA will lift rates next week
By David Chau
There have been some mixed reactions to the ABS inflation data among economists.
Marcel Thieliant (Capital Economics, head of Asia-Pacific):
"While inflation is moderating slightly faster than the RBA had anticipated, price gains remain far too strong to be consistent with the [Reserve] Bank’s 2-3% inflation target and we’re sticking to our forecast of a final 25bp [basis point] rate hike next week."
David Bassanese (BetaShares, chief economist):
Mr Bassanese believes there's a "good chance" the RBA will not need to lift rates this year, and that there may be a "rate cut on or before Melbourne Cup as the economy slows – and especially if the currently red-hot US economy tips into recession".
He also said that "compared to the United States, we’re already starting to see signs of a slowdown in consumer spending – likely because of the higher incidence of variable rate mortgages in Australia, which means the transmission mechanism of higher short-term interest rates though to household spending power has been quicker".
"Australia has closer to 80% variable rate mortgages, which are more sensitive to short-term interest rates, whereas in the United States close to 80% of mortgages a fixed for periods of up to 30 years."
Cherelle Murphy (EY, chief economist):
"Inflation may be past its peak, but that’s about where the good news ended in today’s inflation data.
The Reserve Bank is patiently waiting for inflation to fall to the target band of 2 to 3 per cent, but there is no room for upside surprises.
Inflation remains uncomfortably high, amidst a very resilient labour market and strong business conditions, which means there is still a case for at least one more rate hike. "
Chalmers says cost of living relief coming in budget as inflation persists
By Kate Ainsworth
Jim Chalmers has also used his press conference in Sydney to spruik cost of living measures in next month's budget.
"While inflation is still unacceptably high, we do welcome the fact that some of these price pressure in our economy have started to ease, but even as these pressures ease a bit, we understand that Australian households and small businesses are still under the pump," he said.
"Cost of living pressures are still coming at us from around the world and they are still being felt around the kitchen tables of this country.
"That's why the budget will contain cost of living relief, which prioritises the most vulnerable people in our community.
"Assistance, for example, with energy bills will go to people on pensions and payments and there are two other sets of developments today which are key as well and which will make a difference to these cost-of-living pressures."
He also pointed to today's announcement about halving the cost of pharmacy medicines to provide cost of living relief to millions of Australians.
Data shows inflation has 'passed its peak', Treasurer says
By Kate Ainsworth
The Treasurer Jim Chalmers is speaking in Sydney at the moment, and says the inflation data today shows that the worst of the inflationary pressure is behind us, but will continue to linger.
"Today's new inflation data provides further evidence that inflation has passed its peak and is now moderating in our economy," he said.
"The worst of the inflationary pressures are behind us, but they will hang around higher than we'd like, for longer than we'd like.
"The consumer price index rose by 7% over the year to the March quarter, down from 7.8% over the year to December. In the quarter, inflation rose 1.4%.
"This is the smallest quarterly increase since December 2021.
"Inflation began building in our economy early in 2022, the biggest increase, biggest monthly increase, in inflation was in the March quarter of 2022 before the election, and it's now easing in our economy."
Inflation and HECS debts
By Gareth Hutchens
Now that we have the March CPI values, can we get a figure on what HECS will be indexed at? First home buyer here on a sole income, with a HECS debt likely to be indexed at a higher rate than my (variable) home loan. While I timed getting into the market well (purchased land in Feb 21), it hurts to have my mortgage increase by more $250 a week and HECS debt to indexed at potentially 7%. The real question I have to answer is do I pay off the HECS to increase my cashflow to cover rising interest rates, but at the cost of losing a sizeable chunk out of my offset account! What a time to be alive
- KP
One of the more aggravating things about HECS debts is how they're indexed to CPI.
It means the interests of the lender (ie the government) are protected, because the real value of the debt isn't allowed to deteriorate.
If only our wages were treated with the same respect...
The Australian Greens have been quick to issue a press release on this point, following this morning's CPI data.
They had this to say:
CPI figures released this morning confirm that millions of Australians will be slugged with a 7.1% increase in their student debts on 1 June.
Someone with an average student debt of $24,770.75, will see that debt increase by $1,758.72.
For more than half a million people with debts of around $40,000, it will add another $2,840 to your debt.
Australian Greens Deputy Leader and Education spokesperson Senator Mehreen Faruqi, who introduced a bill to freeze student debt last year, has demanded the Government urgently intervene to stop the unprecedented and deeply unjust increase.
Watch: Treasurer Jim Chalmers on inflation data
By Kate Ainsworth
Treasurer Jim Chalmers is speaking in Sydney after the ABS released the latest inflation data.
You can tune in below:
Market reaction to ABS inflation data
By David Chau
There wasn't a huge market reaction to the latest ABS inflation data, which was within market expectations.
The Australian dollar was trading at 66.2 US cents (after slipping by 0.1%).
It climbed as high as 66.39 US cents earlier on Wednesday morning.
Meanwhile, the ASX 200 was practically flat at 7,318 points (an improvement over the share market's opening loss of 0.5%).
Investors are overhelmingly betting the Reserve Bank board will keep its cash rate target on hold again at its meeting next week.
Markets have now priced in a 90% chance of the RBA leaving rates unchanged, with 10% speculating there may be a rate hike.
Gold stocks remain the best performers on the market today, including Gold Road Resources (+5.4%), Evolution Mining (+4.2%) and Silver Lake Resources (+3.1%).
On the flip side, today's worst performers include Mineral Resources (-9.6%), Syrah Resources (-5.8%), BrainChip (-4.3%) and BlueScope Steel (-4.1%).
Quarterly inflation is more important
By Gareth Hutchens
Why does the ABS Monthly Consumer Price Index release say CPI rose 6.3% in the 12 months to March whereas the Quarterly CPI release says CPI rose 7.0%? Why are they different for the same period of time?
- Norm Vee
Good question.
The monthly and quarterly inflation releases have different levels of coverage.
Economists say the most important inflation dataset is the quarterly one, because it's far more comprehensive.
The monthly dataset, which is still relatively new and experimental, only shows up-to-date prices for somewhere between 62 and 73 per cent of the weight of the CPI basket.
This is how the ABS explains the difference:
Conceptually, the monthly CPI indicator will include all the items of the quarterly CPI basket, however, not all items in the basket will be updated with new prices each month.
As a result, the monthly CPI indicator has some deficiencies relative to the quarterly CPI.
In particular, the frequency of price collection and the methods used to compile the two indexes will lead to differences between the monthly CPI indicator and the quarterly CPI.
Monthly price data is available for 43% of the CPI basket. When combined with quarterly and annual price collections, the new monthly CPI indicator represents up-to-date prices for between 62 and 73 per cent of the weight of the CPI basket, depending on the month in the quarterly cycle.
That's why economists say the monthly CPI has become a useful indicator of where inflation could be heading, but they still need to see what the quarterly inflation figures say to really understand what's going on.
Here's what the inflation trend looks like now
By Kate Ainsworth
As you can see, inflation has dropped since December — but it is still a long way away from that 2-3% target the RBA is aiming for.
Market snapshot at 12:05pm AEST
By David Chau
The risk of hawkish rate increases
By Gareth Hutchens
What is the latency between rate hikes and changes in economic data like inflation and unemployment? Is it likely the RBA has gone too far, too fast?
- Ryan
There is a risk the RBA has gone "too far, too fast," and RBA officials acknowledge that.
But they've made the judgement that it's wiser to try to get on top of inflation earlier, rather than risk letting higher inflation become embedded in the economy (because that can lead to all sorts of problems).
Regarding the question of latency, RBA governor Philip Lowe says it can take between 12 to 24 months for the full effects of rate increases to work through an economy.
Prices have continued to rise for most goods and services, but at a slower pace
By Kate Ainsworth
In its latest inflation update, the ABS said prices had been going up for most goods and services, but the scale of those increases has started to slow down.
But there are some exceptions — medical services, tertiary education and gas and household fuels (eg. electricity) have all had significant jumps:
- Medical services +4.2%
- Tertiary education +9.7%
- Gas and other household fuels +14.3%
So what's behind the jump in medical services?
"Prices for medical and hospital services typically rise in the March quarter as GPs and other health service providers review their consultation fees, and the Medicare Safety Net is reset at the start of the calendar year," said the ABS's head of price statistics Michelle Marquardt.
"This year some private health insurance premiums also increased in January, adding to the price rise for medical and hospital services."
Indexation on tertiary education fees has also contributed to that increase.
"This quarter additional strength was seen in tertiary education as changes in student contribution bands and fees introduced in 2021 as part of the Jobs-ready Graduates Package continued to flow through to the index," Ms Marquardt said.
What do you want to know about inflation?
By Kate Ainsworth
With quarterly inflation data showing that it's beginning to taper off, what do you want to know about how this will affect interest rates, the RBA's decision making process, the federal budget or the economy in general?
My colleague, business reporter Gareth Hutchens is standing by to answer your questions on all things inflation — no matter how curly they might be.
Send in your questions or queries using the big blue button at the top of the page, and Gareth will be ready and waiting to answer.
ABC/Reuters
