Australian Share Market Set to Open Higher Ahead of Latest Inflation Data

The Australian share market is expected to open positively on Monday, April 24, 2024, before the publication of the most recent inflation statistics. According to CommSec's Tom Piotrowski, the S&P/ASX 200 Index is poised for gains, following a rally in tech heavyweights on Wall Street last week.

However, the market's early momentum may be tempered by the upcoming inflation figures for the first quarter of 2024. The Consumer Price Index (CPI) is anticipated to show a 1.0% rise in the March quarter, up from the 0.6% increase recorded in the previous quarter. This could potentially push out the possibility of a Reserve Bank interest rate cut in the near term.

Why this matters: The inflation data will be closely watched by investors and policymakers, as it will guide the Reserve Bank of Australia's upcoming monetary policy decisions. A higher-than-expected inflation reading could lead the central bank to maintain interest rates at current levels for an extended period, impacting borrowing costs and consumer spending.

On an annual basis, Australia's CPI inflation is projected to decrease to 3.6% in the first quarter, down from 4.1% in the previous quarter. While this marks the fifth consecutive quarter of slowing inflation since the peak of 7.8% in December 2022, it remains above the Reserve Bank's target range of 2-3%.

The trimmed mean, a key measure of underlying inflation, is also forecast to ease to 4.0% in the March quarter, compared to 4.2% in the previous quarter. "The ongoing reduction in underlying inflation, which takes out highly volatile items, also provides some solace to ASX 200 investors," Piotrowski noted.

Despite the anticipated slowdown in inflation, the stronger-than-expected quarterly CPI rise has led markets to abandon hopes for any rate cuts from the Reserve Bank of Australia this year. The central bank has left interest rates unchanged at 4.35% for three consecutive meetings, as policymakers remain cautious about any moves on policy amid a tight labor market.

In response to the inflation data, the Australian dollar jumped 0.6% to $0.6522, while three-year bond futures tumbled 15 ticks to 96.00, the lowest level this year. Financial exchanges have even priced in a minimal chance of a rate hike by August, while pricing out almost any bet of a rate cut in 2024.

The inflation figures have also blindsided Treasurer Jim Chalmers' budget preparations, with economists warning that new government spending could further delay interest rate cuts. The upcoming federal budget in May is expected to announce support measures to address the ongoing cost of living crisis in Australia.

The Australian share market closed flat on Wednesday, April 24, 2024, with the S&P/ASX 200 Index finishing the session unchanged at 7,683 points. The hotter-than-expected inflation

Key Takeaways

• ASX expected to open positively on Apr 24, 2024 ahead of inflation data
• Q1 2024 CPI forecast to rise 1.0%, up from 0.6% in previous quarter
• Higher inflation may delay RBA interest rate cuts, impacting borrowing costs
• Annual CPI to ease to 3.6% in Q1, but remains above RBA's 2-3% target
• Inflation data has led markets to price out rate cuts in 2024, expect hike