ASX 200 slumps as Q3 inflation data delays RBA rate cut until 2025

The ASX 200 is trading 45 points lower (-0.55%) at 8203 as of 1.30pm AEDT.

Inflation data ends winning streak

The ASX 200 has ended a three-day winning streak following the release of third-quarter (Q3) 2024 inflation data, which dashed hopes for a Reserve Bank of Australia (RBA) interest rate cut before the end of the year.

Headline inflation rose by 0.2% over the quarter (the consensus was +0.3%), bringing the annual rate to 2.8% from 3.8% prior. This was below forecasts of 2.9%.

The RBA’s preferred measure of inflation, the trimmed mean, rose by 0.8% for the quarter (consensus was +0.8%). The annual rate fell to 3.5% from 4.0%, marking a seventh consecutive quarter of lower annual trimmed mean inflation.

Insights from the Australian Bureau of Statistics

Michelle Marquardt, Australian Bureau of Statistics (ABS) head of prices statistics, noted, 'The September quarter’s rise of 0.2 per cent is the lowest outcome since the June 2020 quarter fall, which occurred during the Covid-19 outbreak and was driven by free childcare.'

'Annually, the September quarter’s rise of 2.8 per cent was down from 3.8 per cent in the June quarter. This is the lowest annual inflation rate since the March 2021 quarter.'

Factors driving inflation changes

The sharp fall in the headline inflation rate was largely expected and is attributed to declines in electricity prices (-17.3%) from government rebates, and automotive fuel prices (-6.7%).

Interest rate implications

This time last year, the annual rate of trimmed mean inflation stood at 6%. However, following 13 RBA rate hikes between May 2022 and November 2023, inflation is now within reach of the RBA’s 2-3% target range.

While today’s fall in the trimmed mean nudges closer to the start of an RBA rate-cutting cycle, the continued resilience of the labour market (which has added 267,000 jobs over the past six months) suggests that RBA rate cuts will likely be deferred until early 2025.

In conclusion, we expect the RBA to remain on hold at 4.10% until February 2025 unless the October jobs report, due on 14 November, shows a significant softening in the labour market.

Woolworths' share price drop

Adding to the downbeat tone, Woolworths's share price has fallen 5.5% today to $31.00 after downgrading its first-half (1H) fiscal year (FY) 2025 earnings to $1.48 - 1.53 billion, 10.4% below consensus.

The downgrade comes as consumers facing cost-of-living pressures shift to lower-margin items. It is the latest challenge for the nation's largest retailer, which is also in a dispute with the Australian Competition and Consumer Commission (ACCC) over misleading consumers on price discounting.

ASX 200 technical analysis

The ASX 200 continues to consolidate below multi-month trend channel resistance, currently residing in the 8350 - 8360 area, and above important support at 8110 - 8100. A sustained break of either of these levels is needed to indicate the direction of the next significant move for the ASX 200.

ASX 200 daily chart

• _{Source: TradingView. The figures stated are as of 30 October 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.}