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Aussie inflation down; more incentive to invest in these ASX shares?

The Australian Bureau of Statistics (ABS) consumer price index (CPI) report today revealed the Australian inflation rate has again fallen short of expectations.

According to the report, annual CPI inflation is now running at 1.9%, coming in under the Reserve Bank of Australia’s (RBA) targeted range of between 2% and 3% yet again.

The figures state CPI rose 0.4% over the September quarter while underlying inflation – which strips out items like food and fuel – fell to 1.6% – its lowest level since 2017 and outside the RBA’s “comfort zone”.

According to the ABS, holiday travel and accommodation recorded the most significant rises over the quarter – up 4.3%, with tobacco at 1.8%, property charges and rates at 2.3% and fuel at 1.4% while childcare fell 11.8% with telecommunications equipment and services also down 1.5%.

These figures equate to the 11th consecutive quarter core inflation has undershot the RBA’s long-term target – the most protracted run of misses recorded.

So, with the by-product being that interest rate hikes are looking less likely as a result, does this mean the average investor will have more money to pour into shares?

Potentially.

However, simplistically, lower levels of inflation can be an overall sign of growth stagnation across the economy.

When inflation goes up, the economy kicks on pretty steadily, so investors will usually be clocking up some good growth in their portfolio during this time – provided the companies they’re banking on have got their formula for success right and assuming they’ve still got money to spare given things are costing more to buy.

For mortgagees, experts are tipping the all-time-low interest rates currently in play should hold out until about 2020, so for those seeking investment opportunities during this time you’d be thinking more along the lines of keeping defensive high-yield stocks on your list.

Even in times of low inflation, for the most part, these stocks will likely return far more to you than a bank term deposit will over a given period.

So which stocks are safest to bet on in the current environment?

Keeping in mind a weaker Australian dollar will also be something to consider.

Think Macquarie Group Ltd (ASX: MQG) as a start.

Macquarie has long been known for its favourable mix of profit growth, adaptability to changing conditions and solid yield – its grossed-up dividend yield is currently sitting at 5.43%.

But if you feel wary of anything in the vicinity of a big bank at this impasse, a stock like global packaging stalwart Amcor Limited (ASX: AMC) could also be a good pick.

Amcor has a dividend yield of 4.49% plus it’s currently hovering in buy territory with its share price at $13.10 – well down from its price point of $15.84 at this time last year after a period of decline starting in early August.

Other defensive picks include CSL Limited (ASX: CSL), Transurban Group (ASX: TCL), Aristocrat Leisure Limited (ASX: ALL) and even Carsales.Com Ltd (ASX: CAR).

But remember, when seeking out defensive stocks be sure to measure up earnings growth over a historical period, take a close look at returns on equity and don’t forget to consider earnings certainty into the future – you need to really drill down into the characteristics of the stock in your due diligence phase in this type of market.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Transurban Group. The Motley Fool Australia has recommended carsales.com Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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