Australian Inflation Slows Down, While Canada’s Economy Grin
Australia’s annualized inflation rate eased in January to 7.4%, but this is still the second-highest monthly year-on-year increase since records began back in September 2018.
The figure will come as a welcome surprise to many analysts, who forecasted that January inflation would be around the 8.1% mark.
In December the annualized CPI stood at 8.4%, so the latest announcement could be a sign that the nine successive interest rate hikes from the Reserve Bank of Australia (RBA) are now being absorbed into the economy.
Last month the RBA raised rates to 3.35% and was clear that the cost of borrowing would continue to rise.
The growth rate has fallen in the past two quarters down to 0.7% and 0.5% for the final three months of last year, from the 0.9% recorded in the second quarter of 2022.
A Deloitte study of the final quarter of 2022 revealed that retail sales are beginning to reverse, due to the current economic headwinds.
Non-food sectors are forecast to take the brunt of the latest retail trends, as non-discretionary items are prioritised.
The AUD/USD currency pair appreciated to $0.68 from $0.67 following the data release, as the reduced inflation may have sparked optimism that interest rate rises could be eased.
The S&P/ASX 200 Index was also encouraged by the latest CPI figure, as it rose from trading at a little under 7,220 before the CPI announcement to 7,251.
A hike in the cost of housing by just under 10%, followed by an 8.2% rise in food and beverage prices, were two of the most significant moves on the CPI indicator.
New dwellings and rent prices rose by 0.5% and 0.7% respectively.
Yet new rents are growing at a faster pace compared to a year ago, while new house prices are starting to stabilise.
Recreation prices jumped by a considerable 10.2%, as travel and accommodation prices rose by 17.8%.
Canada’s economy came to a standstill in the fourth quarter of last year, as Statistics Canada figures revealed that growth was slightly negative. Analysts had been expecting data showing unchanged growth, but the differential was tiny.
There was further gloomy news, as the Bank also downgraded the growth figures for the third quarter last year to 2.3% from 2.9%.
The GDP figure will provide some food for thought for the Bank of Canada on how it will approach its next interest rate decision on 8th March.
In January rates were raised by 0.25% up to 4.50%, but this was a slower-paced hike than the two previous 0.50% rate rise calls, and the 0.75% increase last September.
Falling business investment was a major reason why GDP declined in the final three months of last year, as spending on machinery and equipment such as computing and industrial machinery dropped by 7.8%.
As interest rates have climbed upwards, the subsequent rise in mortgage rates has placed an inevitable strain on demand in the housing market.
Housing investment saw a fourth-quarter decline of 2.3%, and over 2022 fell by a considerable 11.1%.
Yet household spending did increase for the fourth quarter by 0.5% after it had edged downwards by 0.1% in the third quarter.
Employees’ salaries also rose by 1.2% in the fourth quarter, which was no change quarter-on-quarter, but again was the slowest increase since the second quarter of 2020.
It remains to be seen how these trends will affect Canadian inflation. Annualized prices fell to 5.9% in January, a 0.4% drop in contrast to the December figures.
Despite the poor data, the USD/CAD currency pair traded lower, but the Canadian Dollar fell against the UK Pound before increasing up to buying £0.61.
The Canadian S&P/TSX index traded sideways in the aftermath of the GDP release.
Overall, the Canadian data seems to have had little impact on the market.