Cooler Q2 2024 inflation raises prospects for RBA rate cut, boosting ASX 200

The ASX 200 trades higher on cooler Q2 2024 inflation data

The ASX 200 trades 98 points (1.21%) higher at 8050 at 1:00pm (AEST).

Today's release of a cooler mix of June quarter inflation data has relieved pressure on the RBA to raise rates again and sent the ASX 200 soaring towards record highs. Notably, the Australian interest rate market has flipped from pricing in the small chance of an RBA rate hike before year-end to pricing in the possibility of a first RBA rate cut before year-end.

Q2 2024 inflation details

Headline inflation rose by 1.0% over the quarter (the consensus was +1.0%), bringing the annual rate to 3.8% from 3.6% prior, the first increase in annual CPI since December.

The RBA’s preferred measure of inflation, the trimmed mean, rose by 0.8% in the June quarter (consensus was +1.0%), allowing the annual rate to fall to 3.9% from 4.0% prior – locking in a sixth quarter of lower annual trimmed mean inflation.

Michelle Marquardt, ABS head of prices statistics, said, "The June quarter rise is the same as the 1.0 per cent rise in the March 2024 quarter. The annual rise of 3.8 per cent for the June quarter is up from 3.6 per cent in the March quarter. This is the first increase in annual CPI inflation since the December 2022 quarter.”

Trimmed and mean inflation rate

RBA Rate hike cycle and inflation targets

The RBA raised rates 13 times between May 2022 and November 2023, taking its official cash rate from 0.1% to 4.35%. The aim of the RBA’s rate hike cycle was to bring inflation back within its target range of 2-3%.

Market anticipates RBA rate cuts amid inflation relief

Today's sixth quarter of lower annual trimmed mean inflation provides encouragement that inflation can end the year at the RBA's forecast of 3.4% without requiring the shock therapy of another RBA rate hike. Notably, the Australian interest rate market has flipped from pricing in the small chance of an RBA rate hike before year-end to pricing in the possibility of a first RBA rate cut before year-end.

The RBA’s 5 November meeting has 12 basis points (bp) of a 25bp rate cut priced. The RBA’s 10 December meeting has 19bp of a 25bp rate cut priced. The RBA’s 18 February 2025 meeting is fully priced for a 25bp rate cut, which would take the cash rate back to 4.10%.

Post the CPI release, possible rate cut relief has seen the ASX 200 extend its early gains to hit a high of 8061.6, on track to retest its record high from mid-July at 8083.7. Providing the ASX 200 remains above support provided by last week's double low at 7861, we expect the ASX 200 to push towards 8150 in the sessions ahead.

ASX 200 daily chart

• _{Source: TradingView. The figures stated are as of 31 July 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}