The S&P/ASX 200 Index (ASX: XJO) was already enjoying a strong run on Wednesday.
That was fuelled by a strong performance in United States markets yesterday (overnight Aussie time). Investors sent the S&P 500 Index up 1.5% after analysts upped their bets the Federal Reserve may hold off on another interest rate hike in September amid a slowing US jobs market.
This gave the ASX a good head start in morning trade.
Then, at 11:30am AEST, the latest monthly Consumer Price Index (CPI) data was released by the Australian Bureau of Statistics (ABS).
And investors reacted by sending the ASX 200 rocketing to a new two-week high.
In early afternoon trading, the benchmark index is up 1.4% at 7,309.8 points, its highest level since 11 August.
Here's what happening with inflation Down Under.
Why are ASX 200 investors celebrating?
Soaring inflation, and the resulting sharp increases in interest rates from the Reserve Bank of Australia, have pressured most ASX 200 stocks.
But in a sign that the RBA's hawkish rate hiking cycle may be at, or near, an end, the ABS reported today that the CPI indicator rose 4.9% in the 12 months to July 2023.
While that's still well above the RBA's target range of 2% to 3%, inflation continues to broadly trend lower.
Commenting on the latest CPI data, ABS head of prices statistics Michelle Marquardt said, "This month's annual increase of 4.9% is down from 5.4% in June. Annual price rises continue to ease from the peak of 8.4% in December 2022."
Some of the sectors that continue to drive inflation include a 7.3% increase in housing costs and a 5.6% increase in food and non-alcoholic beverages prices.
Helping ease price pressures, and boost the ASX 200 today, was a 7.6% decline in automotive fuel costs and a 5.4% drop in fruit and vegetable prices.
Though Marquardt qualified the sizeable fall in headline inflation, adding:
CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel. It can be helpful to exclude these items from the headline CPI indicator to provide a view of underlying inflation.
When excluding these volatile items, the decline in annual inflation is more modest at 5.8% in July, compared to 6.1% in June.
Judging by the strong boost in the ASX 200, it appears investors are happy with both the 0.3% decline in underlying inflation and the 0.5% decrease in headline inflation.
