Australia's hot inflation surge triggers ASX 200 selloff

Hot inflation print rattles ASX 200

The ASX 200 trades 100 points (-1.3%) lower at 7665 at 3:00pm AEST.

The ASX 200 has dived over 100 points today, extending its Wall Street-inspired opening fall following the release of hotter-than-expected Australian inflation data. All eleven ASX 200 sectors are trading in negative territory, with consumer-facing stocks and financials among the day's biggest losers.

The Monthly CPI indicator for April rose by 3.6% YoY in April, up from 3.5% in March and above market forecasts of 3.4%. Annual trimmed mean inflation was 4.1% in April, up slightly from 4.0% in March.

Michelle Marquardt, ABS Head of Prices Statistics, said, “Annual inflation increased to 3.6 per cent this month, up from 3.5 per cent in March. Inflation has been relatively stable over the past five months, although this is the second month in a row where annual inflation has had a small increase.”

The most significant contributors to the April annual rise were Housing (+4.9 per cent), Food and non-alcoholic beverages (+3.8 per cent), Alcohol and tobacco (+6.5 per cent), and Transport (+4.2 per cent). As today’s release is the first month of the new quarter, it only updates about 60% of the basket. Furthermore, today's update is weighted towards goods rather than the troublesome service components.

Christmas rate cut hopes fading for Aussie households

In the minutes from the RBA’s May Board meeting, it was noted that members judged that “it remained reasonable to look through short-term variation in inflation to avoid excessive fine-tuning.” In this context, today’s print won't move the dial ahead of the RBA’s board meeting on June 18. However, it will raise questions about the pace and sustainability of inflation decline towards the RBA’s target in “a timeframe” consistent with the RBA’s strategy.

Today's hotter-than-expected inflation print suggests the runway for the RBA to deliver Australian households an early Christmas gift in the form of a December rate cut has narrowed and that rates will stay higher for longer.

Ahead of the RBA’s June 18 Board meeting, the key data points will be in focus:

• Q2 GDP (Wednesday, June 5)
• Jobs data for May (Thursday, June 13)
• Additionally, there will be keen interest in the Fair Work Commission's FY24 minimum award wage decision to be announced this Monday, June 3.

What do the charts say?

The ASX 200 spent most of May spinning its wheels below resistance at 7910 (from the early April high) and above a strong band of support at the 7720/7700 area.

If today's break of support at 7720/7700 is confirmed over the next twenty-four hours, it warns that the ASX 200 has carved out a double top at 7900/7910 and that a deeper pullback is underway towards 7500/7400. To negate the downside risks, the ASX 200 needs to see a prompt rebound back above 7720.

ASX 200 daily chart

• _{Source TradingView: the figures stated are as of May 29, 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.}