Following last week's events, which appear to have rolled into this week too, financial markets around the world are pricing in rate cuts from both the US Federal Reserve and the Reserve Bank of Australia (RBA). Although, the European Central Bank (ECB) raised rates by 0.50 bps following SVB's collapse citing a resiliant banking system, with strong capital and liquidity positions. Really?
All of this in the pursuit of killing the big bad inflation wolf. We all know how sticky inflation has been, especially in Australia. Today we take a look at what we might expect in the months ahead - thanks to Shane Oliver from AMP Capital for some of the charts.
Australian Pipeline Inflation Indicator appears to be dropping like a brick.
Gas prices look like they're about to come down.
Wholesale electricity prices are pointing to more price hikes ahead before we see price falls.
Domestic travel prices looks like it's peaked - thank goodness!
Petrol prices continue to fall - just in time for the arrival of my Tesla - grrrr!
Used car prices are on the down too.
And rents...well, we still have a way to go here. Higher interest rates and low supply and vacancy will see rents remain elevated for some time, which is not helping inflation.
It's been a while since we've seen any slowdown in Australian inflation. But future indicators are telling us we're not far away. I think we're a few months away before we see any material turn in Australian inflation. The developments of last week will certainly have the RBA scratching their heads at April's policy meeting. We have the Federal Reserve later this month with their rate decision. Maybe a pause for both central banks is prudent?
Furthermore, Australia's fixed interest rate cliff is looming. In the months of June and July of this year, we're going to see about 17% of fixed rate loans mature. Following that, about 15% in the September quarter, and then about another 11% in the December quarter, with another 38% expiring in 2024 and beyond. This could be extremely problematic for borrowers with many fixing anywhere between 2% and 3%. Variable rates today are around 6%. Ouch.
This data is the RBA's own data. I hope they're looking through the windscreen and not the rear-view mirror as they head into April's policy meeting.
Jonathan Sim and I discuss more of what is going on in financial markets in last week's The Wide Lens Podcast.