CPI Shock

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By Greg Peel

I should never go shopping. Every time I come back from the supermarket I despair at the amount I just paid for fruit and veg. And then I think about the CPI…

Following on the heels of an increased PPI, the market was expecting bad news on today’s CPI figure. Around 1% increase for the June quarter was the call.

The figure came in at 1.6%, taking the annual headline to 4%. The RBA’s comfort zone is 2-3%. It was already accepted that the RBA would raise rates to 6.00%, most likely next month (next week). Now it’s almost a lay-down mezzaire that we’ll see 6.25% soon.

If you don’t count the GST step-jump, this is the worst inflation figure in 10 years. A lot of it was to do with fruit and veg, and TD Securities Stephen Koukoulas believes there’s an outside chance the RBA may see through groceries to some extent.

However, there is little else to be denied, says Koukoulas. Global inflation is rising. The labour market is tight, putting upward pressure on wages. Tax cuts have boosted consumer spending. Credit growth defies logic. The PPI was strong.

As we speak the Australian stock market is being trashed.

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