ASX 200 shares trim losses despite surging inflation news

Australia’s inflation rate has recorded its biggest quarterly jump since 2000.

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Key points

  • The ASX 200 is recovering from this morning's carnage to record a drop of just 0.67%
  • That's despite Australia's CPI recording its biggest quarterly and annual jump since GST was introduced in 2000, with inflation inflation rising 2.1% last quarter and 5.1% over the last 12 months 
  • The finding has likely raised concerns the RBA could hike rates when it meets next week

The S&P/ASX 200 Index (ASX: XJO) multi-day dip appears to be softening on Wednesday, despite Australia’s inflation rate recording its biggest quarterly jump in more than two decades.

The latest consumer price index (CPI) data, released today, shows the nation’s inflation rate has risen 5.1% over the last 12 months.

The finding has likely heightened concerns the Reserve Bank of Australia (RBA) could increase interest rates when it meets on Tuesday.

Interestingly, the news hasn’t outwardly impacted sentiment on the market. At the time of writing, the ASX 200 is sporting a 0.67% dip.

That sees it at its lowest point in more than a month, compressed by what’s now a three-day losing streak.

ASX 200 shares slip slightly amid major inflation jump

ASX 200 shares are recovering from this morning’s tumble after what could have been a devastating blow on Wednesday.

The Australian Bureau of Statistics (ABS) released its latest CPI data today. It found inflation rose 2.1% last quarter, bringing its annual increase to 5.1%.

“The CPI recorded its largest quarterly and annual rises since the introduction of the goods and services tax [in 2000],” said ABS head of prices statistics Michelle Marquardt.

Underlying inflation also increased 1.4% last quarter and 3.7% over the last year – reaching its highest level since 2009.

The biggest drivers of inflation last quarter were new dwellings, higher education, and fuel.

Shortages in building supplies and labour, higher freight costs, and waning federal and state government support paired with ongoing demand boosted the cost of building 5.7% last quarter.

The cost of tertiary education increased 11%, reflecting last year’s update to student contribution bands and fees.

The CPI’s fuel series reached another record level, rising 6.3%, with prices rising every month of the March quarter, according to Marquardt.

The rising cost of food – which increased 2.8% last quarter – didn’t help Australians’ back pockets, as COVID-19 disruptions and weather events took their toll on transport, fertiliser, packaging, and ingredients.

Australians might have also noticed their supermarket spend increase by 4% last quarter. The price of vegetables rose 6.6%, the cost of fruit increased 4.9%, and beef prices surged 7.6%.

Is a rate hike on the cards?

The ASX 200 big four banking shares are predicting interest rates will rise from June. The RBA interest rate is currently at an all-time low of 0.1%.

Westpac Banking Corp (ASX: WBC) is the loudest to herald a rate rise.

It’s predicting the RBA will up the cash rate by 40 basis points in June, according to RateCity. The bank also thinks the rate will reach 2% by June 2023.

Australia and New Zealand Banking Group Ltd (ASX: ANZ) predicts the cash rate will reach that same level. Though, it’s not expecting it until November 2023.

Meanwhile, Commonwealth Bank of Australia (ASX: CBA) is predicting it will reach 1.25% by next February.

Finally, National Australia Bank Ltd (ASX: NAB) expects the cash rate to rise to 2.25% by August 2023, reports RateCity.

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