ASX 200 lifts on lower-than-forecast inflation data

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

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).

A young female investor sits in her home office looking at her ipad and smiling as she sees the QBE share price rising

Image source: Getty Images

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.

More on Economy

Man holding graphic houses with dollar signs and graph points surrounding them.
Economy

How much further will house prices fall, according to AMP's chief economist?

There's no good news around house values for the foreseeable future.

Read more »

A businessman pushes a giant percentage sign down, indicating eforts to keep inflation in check
Economy

Inflation jumps back to 4%. Are more interest rate hikes coming?

Another inflation increase has put the RBA back in focus.

Read more »

Red percentage sign in front of a chart.
ASX Share Market News

ASX 200 slips as RBA boosts interest rates to 15-year highs

ASX investors and mortgage holders are now eyeing the highest interest rates in 15 years.

Read more »

Oil spelt out on block cubes with an up and down arrow.
Economy

Oil prices rise again as Middle East uncertainty keeps traders guessing

Oil prices are back on the move.

Read more »

A man stands in overalls and a hardhat with a clipboard in front of stacked black oil drums at an oil industry site.
Economy

Oil prices surge as Trump rejects Iran peace deal. What's next?

Could oil prices be heading for another major move?

Read more »

A man sits at his kitchen table reading the paper and drinking coffee as rain pours on him, while a woman stands with an umbrella over her head in the distant background.
Economy

Australia's recession risk hits 50% as RBA prepares to lift rates

Could further RBA rate hikes push the economy too far?

Read more »

A shocked man sits at his desk looking at his laptop while talking on his mobile phone with declining arrows in the background representing falling ASX 200 shares today
Economy

Could two more RBA rate hikes push Australia into recession?

One economist has issued a warning about our economic outlook.

Read more »

a man in a suit jacked sits uncomfortably with his hands clasped before his face in a job interview situation while sitting across from an interviewer
Economy

Unemployment hits 4.6%. Could the RBA hold off on another rate hike?

The RBA has plenty to consider ahead of next week's meeting.

Read more »