Daily Commentary BY THE CURVE TEAM –

CPI Disappoints, Fed Holds Course

1st of February, 2018

The solid run of domestic data came to an end yesterday following the release of the inflation numbers from the fourth quarter. The result is enough to keep the RBA sidelined for the time being while their counterparts in the US hold their course according to the outcome of last nights meeting.

Inflationary pressures in Australia remained fairly benign in the fourth quarter with both the headline and core readings marginally falling short of estimates. Both the headline and core rates of inflation now sit just under the RBA’s target band at 1.9% after quarterly increases of 0.6% and 0.4% respectively.

A broad overview of the result indicates that most of the inflationary pressures that are evident in the economy are on the items consumers need. On the other hand, there is still very little price pressures on the most discretionary items.

The other interesting takeaway point was that the growth rate of outstanding debt continues to slow. Total outstanding debt grew at 0.3% in December with the annual rate dipping below 5% for the first time since May 2014. This continues to support the notion that the RBA will not be needing to rush into adjusting monetary policy.

Meanwhile in the US, outgoing FOMC Chair Janet Yellen did little to rock the boat in her last meeting at the helm. The FOMC left rates on hold and made some small adjustments to their accompanying statement, mostly reflecting the strength in the data since their previous meeting.

In addition to the improving economic outlook, the FOMC still see inflation heading back to target over time. It confirms that unless we see outcomes substantially deviate from their current trend then we will see the FOMC follow their dot plot projection with at least a further 3 hikes this year.

David Flanagan

Director - Interest Rate Markets