The S&P/ASX 200 Index (ASX: XJO) was down as much as 0.6% in morning trade today.
Then, at 11:30am AEDT, the Australian Bureau of Statistics (ABS) released the latest data on Australia's gross domestic product (GDP) growth and the monthly consumer price index (CPI) indicator.
In the following minutes, the ASX 200 charged 0.5% higher.
At the time of writing, the benchmark index is up a fraction of a percent for the day.
Here's what investors are mulling over.
ASX 200 lifts on easing inflation
First, the inflation print.
The ABS reported that the monthly CPI indicator increased by 7.4% in the year to January 2023.
Michelle Marquardt, ABS head of prices statistics, noted that this remains the second highest year on year increase since the ABS began reporting on the monthly CPI in September 2018 "signifying ongoing high inflation."
However, investors' spirits look to have been buoyed by the fact that inflation came in below expectations, and significantly lower than last month.
"This month's annual increase of 7.4% is lower than the 8.4% rise for the year to December 2022," Marquardt said.
Easing inflation could signal that the Reserve Bank of Australia (RBA) might not need to raise interest rates as much as the market has been pricing in. And the prospect of a less hawkish RBA looks to have given the ASX 200 a healthy boost.
As for the areas where inflation is running the hottest in the monthly January CPI indicator, recreation and culture increased 10.2%, housing was up 9.8%, and the price for food and non-alcoholic beverages increased 8.2%.
How about the GDP figures?
Then there was the latest data on the Aussie economy, which also looks to have offered some tailwinds for the ASX 200.
The ABS reported GDP increased by 0.5% for the December quarter, also falling short of expectations. GDP expanded by 2.7% through the year.
While the December quarter marked the fifth consecutive quarter of growth for the Aussie economy, the ABS noted that growth has slowed in each of the last two quarters.
This is a case of bad news potentially being good news for stocks. That's because a slowing economy would also indicate the RBA's rate increases are having an impact, meaning a potential easing of the central bank's rapid tightening policies.
Of course, not all stocks stand to benefit from the report.
In a potential red flag for the medium-term outlook for ASX 200 consumer discretionary shares, the ABS noted that the household saving ratio decreased to 4.5% from 7.1% in the prior quarter.
