ASX 200 lifts on lower-than-forecast inflation data

Inflation in Australia remains high, but it appears to be slowing.

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Key points

  • The ASX 200 rebounded into positive territory following the release of the ABS inflation report
  • The CPI print of 6.9% is lower than the 7.3% movement in September
  • Slowing inflation could mean fewer interest rate hikes from the RBA

The S&P/ASX 200 Index (ASX: XJO) is back in positive territory in early afternoon trade.

The benchmark index was 0.4% lower this morning but has reversed that trend and is currently up 0.2% to 7,270 points.

The ASX 200 looks to have received this boost following the latest inflation data just released by the Australian Bureau of Statistics (ABS).

Why is the ASX 200 lifting on the ABS report?

Inflation in Australia remains high.

Indeed, the ABS reported that the monthly Consumer Price Index (CPI) indicator increased by 6.9% in the year to October 2022.

But the ASX 200 is rallying as this came in lower than the prior month, indicating that the series of interest rate increases from the Reserve Bank of Australia (RBA) may be having an impact.

Should inflation begin to slow significantly, investors can expect fewer rate rises from the central bank. And a more dovish RBA spells good news for equities.

Commenting on the latest data, Michelle Marquardt, ABS head of prices statistics, said:

This month's annual movement of 6.9% is lower than the 7.3% movement in September, however CPI inflation remains high… High levels of building construction activity and ongoing shortages of labour and materials contributed to the rise in new dwellings.

The ABS reported that the biggest contributors to inflation in October were new dwellings (+20.4%), automotive fuel (+11.8%) and fruit and vegetables (+9.4%).

ASX tech shares rallying

ASX tech shares have seen some of the biggest reversals since the intraday release of the ABS inflation data.

Tech shares are particularly vulnerable to higher interest rates, as many of these companies are priced with future earnings in mind. And when interest rates ratchet higher, so too does the present cost of investing in those future earnings.

While the ASX 200 leapt from a 0.4% loss to a 0.2% gain on the inflation report, the S&P/ASX All Technology Index (ASX: XTX) went from a 0.9% loss to a 0.3% gain.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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