Australia's Monthly CPI Indicates a Milder 4.3% Inflation Rate

• Australian inflation softened more than anticipated in November.
• An increase in household spending could reignite demand-driven inflationary pressures.
• It's important to take into account the Fed's commentary later in the Wednesday session.

Australian Monthly CPI Update: Softened Inflation and Implications

Latest Australian inflation data for November has captured investor attention, potentially affecting RBA deliberations about rate adjustments. Despite earlier speculations regarding potential rate cuts, the softer annual inflation rate, declining to 4.3% from 4.9%, contrasts with economists' predicted 4.4% rate.

Key contributors to the inflation rate were housing and food and non-alcoholic beverages, with housing prices up 6.6% and food and non-alcoholic beverage prices rising by 4.6%. Other notable contributors were alcohol and tobacco (+6.4%) and insurance and financial services (+8.8%).

Noteworthy changes in specific sectors include housing, where new dwelling prices rose by 5.5% year-over-year and rents by 7.1%. Moreover, electricity prices increased by 10.7%, and gas and other household fuel prices rose by 12.9%. In contrast, automotive fuel prices only rose by 2.3% in November, down from the previous month's 8.6%.

Despite the softer inflation numbers, future RBA decisions could be influenced by household spending trends. Sustained growth in retail sales may drive demand-driven inflation, potentially influencing the RBA's stance on a rate hike.  

Aussie Dollar’s Movement Following Monthly CPI Release

Prior to the release of the inflation data, the AUD/USD dropped to a low of $0.66786 before climbing to a peak of $0.66877. However, in reaction to the inflation figures, the AUD/USD decreased to a low of $0.66828 before rebounding to a high of $0.66950. By Wednesday, the AUD/USD had increased by 0.04% to $0.66891.  

100124 AUDUSD 3 Minute Chart

Upcoming Market Focus

Later on Wednesday, investor attention will turn to US mortgage rates and speeches from Fed officials. Declining US mortgage rates could bolster consumer sentiment and spending, potentially affecting the timing of Fed rate adjustments.

However, it's crucial for investors to take into account remarks from Fed officials. Fed Vice Chair John Williams is scheduled to speak on Wednesday, with his insights on the US Jobs Report, inflation, and interest rates likely to impact market sentiment.