The S&P/ASX 200 Index (ASX: XJO) had given up its early gains and was flat when the clock struck 11:30am AEDT on Wednesday.
Then the Australian Bureau of Statistics (ABS) published the latest Australian inflation data, covering the month of August.
And ASX 200 investors responded by sending the benchmark index up 0.2% in the minutes that followed.
Here's what's happening with the ongoing effort to bring inflation down under back into the Reserve Bank of Australia's 2% to 3% target range.
ASX 200 investors' interest rate cut hopes boosted
The ABS reported that Australia's annual inflation came in at 2.7% in August. That's down from 3.5% reported in July. And it represents the lowest inflation print since August 2021.
That may be lifting ASX 200 investors' hopes that we may yet see an interest rate cut from the RBA this year. As you're likely aware, yesterday Australia's central bank opted to keep rates on hold at 4.35%.
The RBA board noted, "Our current forecasts do not see inflation returning sustainably to target until 2026."
As for what drove inflation in August, the top contributors were housing, up 2.6%; food and non-alcoholic beverages, up 3.4%; and alcohol and tobacco, up 6.6%.
The ABS noted that transport costs fell 1.1% in August, partly offsetting the annual inflation increase.
Commenting on the data that sent the ASX 200 higher, Michelle Marquardt, ABS head of prices statistics, said:
The falls in electricity and fuel had a significant impact on the annual CPI measure this month.
When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding automotive fuel, fruit and vegetables and holiday travel, and the trimmed mean can provide additional insights into how inflation is trending.
Underlying CPI inflation in August was 3.0%, down from 3.7% in July. Annual trimmed mean inflation, which excludes both the falls in automotive fuel and government subsidised electricity, alongside other large price rises and falls, was 3.4% in August, down from 3.8% in July.
"Both measures of annual underlying inflation in August are the lowest they have been for 2.5 years," Marquardt said.
How did this compare to expectations?
While the ASX 200 bumped higher on the inflation news, investor reaction was likely muted, with the CPI data largely in line with market expectations.
National Australia Bank Ltd (ASX: NAB), for example, noted before the ABS release (courtesy of The Australian Financial Review), "We forecast the headline August CPI indicator rose 2.7% year on year, down from 3.5%, that's in line with the consensus."
Despite the high interest rate environment, the ASX 200 has gained 15% over the past 12 months.
