Australian Bond Exchange

Australian Bond Exchange Weekly Update

Friday 12th January 

Key points 

  • Australian Consumer Price Index Indicator cools 
  • ‘Down down’ – Coles slashes supermarket prices 
  • Aussie retail sales jump on Black Friday sales  
  • Euro Area retail sales weaken again, but optimism climbs 
  • U.S. inflation unexpectedly rises more than forecast 

Global Cash Rates & Inflation 

Australian Consumer Price Index Indicator Cools  

Australia’s November CPI indicator eased to 4.3%, down from 4.9% in October on an annualised basis.  

The result beat analyst expectations of a fall to 4.4% and is the latest indication that inflation in Australia continues to weaken, despite remaining elevated. 

While it doesn’t guarantee the RBA will hold for its February interest rate decision, especially with quarterly inflation data released at the end of this month, it does reiterate that inflation is moving downwards.  

This is especially true for annual food inflation which eased to 4.8% in the September quarter, down from 7.5% in the June quarter.  

‘Down Down’ – Coles Slashes Supermarket Prices  

Given falling food inflation, Coles has reduced the price of more than 300 products including cutting beef steaks and lamb chops by more than 20%.  

The decision comes as the Federal Government applies pressure on supermarket giants to reduce prices in line with falling food inflation.  

Aussie Retail Sales Jump On Black Friday Sales  

Retail sales increased by 2% in November 2023, spurred on by Black Friday promotions. 

There were rises in all retail industries, however discretionary household goods saw the largest increase of 7.5% in November, following a 1% decline in October.  

Department stores increased 4.2% while clothing, footwear and personal accessory retailing increased, 2.7%, followed by other retailing at 1.1%.  

Euro Area Retail Sales Weaken Again, But Optimism Climbs 

It was a different story for retail sales in the Euro Area with data indicating a decrease of 0.3% in November from the previous month.  

On an annualised basis, retail sales fell 1.1% in the 12 months to November with retail volumes contracting 2.5% in Germany.  

Despite the weaker retail sales, the Economic Optimism Index increased to 96.4 points in December from 93.8 points in November of 2023.  

The data underscores rising optimism over the economy and the prospect of rate cuts due to easing inflation.  

Across major EU economies, Italy saw a 2.6 point increase in the ESI, while Spain and Germany both rose by 2.4 points. 

Upside Surprise – U.S. Inflation Beats Forecasts  

U.S. inflation unexpectedly increased in December, hitting 3.4% on an annualised basis, up from 3.1% in November and beating a forecasted 3.2%.  

The rise is the most in three months and is a reminder that while inflation is trending lower, rate cuts as soon as March or April, as some economists have predicted, are not a certainty.  

Core inflation, the Fed’s preferred measure of inflation which strips out volatile items, was also higher, coming in at 3.9% vs an expected 3.8% on an annualised basis. 

The index for shelter contributed over half of the monthly ‘all items’ increase while the energy index rose 0.4%. The food index increased 0.2% in December while the index for food at home increased 0.1% percent over the month. Excluding housing and energy, services prices climbed 0.4 per cent in December. 

 While U.S. Treasury yields surged initially on the announcement, they were swiftly faded and returned to pre-news levels, underscoring the market’s resoluteness for rate cuts.  

 U.S. Federal Reserve officials expect to cut interest rates three times in 2024.

Final Thoughts 

In our view, we’re now entering a crucial phase where inflation figures will dictate how quickly rate cuts materialise in the coming months in the U.S., Europe, and elsewhere.   

In the U.S., while markets and some economists are expecting an imminent Federal Reserve pivot, the latest inflation figures haven’t fired the starting gun. 

In Australia, inflation continues to fall gradually and while rate cuts are also anticipated this year, any unexpected upwards revisions could see them fail to materialise until 2025.  

Investors contemplating how best to position their portfolios for this eventuality may want to consider the unique role that corporate fixed-income securities can play.  

For more information about our available investment opportunities, contact an Australian Bond Exchange adviser today. 

Week Ahead 

  •  Westpac Consumer Confidence Index   
  • UK unemployment data  
  • UK inflation  
  • U.S. PPI and retail sales   
  • U.S. consumer sentiment 


*Data accurate as at 12.01.2024

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