Daily Commentary BY THE CURVE TEAM –

Inflation and Business Data

28th of January, 2021

Both inflation numbers and the business survey had certain factors skew the data.

Inflation was up 0.9% for the December quarter leaving it up 0.9% for the year. The trimmed mean, which discounts for outsized effects on the numbers was noticeably lower, at 0.4% for the quarter.

This suggests certain factors weighed heavily on the headline result, namely childcare. Following the unwinding of free childcare at the start of the pandemic childcare prices rose over 37% for the quarter which made up the bulk of the quarterly rise of inflation.

Tobacco was also up nearly 11% as the excise is re weighted at the end of the year. Dwelling prices are also rising despite subsidies for home building. Overall, the outlook for inflation remains subdued given most of the increase came from one off factors.

Business survey data similarly was disproportionately effected by few factors. In this case covid.

Over November and December business conditions rose 12 points to be +14. Since the GFC this has only been higher once, which shows the improving virus conditions is very positive for business.

Confidence on the other hand rose in November but was undone in December as cases rose in NSW and borders were shut. It now sits at +4.

Josh Stewart

Associate - Money Markets