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What today’s inflation data means for interest rates

The latest CPI data doesn’t warrant anything more aggressive than the RBA’s recent 50 basis point moves, says Pendal’s head of cash strategies STEVE CAMPBELL

INFLATION data for the second quarter came out in line or slightly weaker than expectations today — and the market rallied in response.

The release itself is not enough to warrant anything more aggressive from the Reserve Bank than the 50 basis point raises at its past two meetings.

The risk of a 75bp move had risen after exceptionally strong labour data earlier in the month — and given aggressive moves from other central banks (Bank of Canada going 100 basis points, and the Fed will likely go 75 basis points early tomorrow).  

Consumer Price Index (Jun 2022 quarter)ActualConsensusPriorRevised to
Headline inflation (quarterly):1.8%1.9%2.1%
Headline inflation (annual):6.1%6.3%5.1%
Trimmed mean inflation (quarterly):1.5%1.5%1.4%1.5%
Trimmed mean inflation (annual):4.9%4.7%3.7%
Weighted median inflation (quarterly):1.4%1.5%1%
Weighted median inflation (annual):4.2%4.3%3.2%3%
Source: Australian Bureau of Statistics

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Here are some key data to note from the ABS for the quarter:

  • Goods drove 80% of the increase
  • New dwelling prices recorded their biggest annual rise since the series started in June 1999 due to high levels of construction, shortage of labour and materials
  • Fuel prices rose over the quarter despite the 22c/litre reduction in the fuel excise as the oil price moved higher due to the war in Ukraine
  • International travel and accommodation rose 20%
  • Domestic travel and accommodation rose 1.7%. Accommodation vouchers from the NSW and Victorian Governments partially offset the increase
  • Demand for durable goods remains strong despite higher prices from supply constraints and freight costs
  • Rents in Sydney and Melbourne were positive over the quarter, though still lower than a year ago
  • Other capital cities have recorded strong rise in rents: Darwin (11.4%), Perth (9.1%) and Canberra (5.1%) lead the charge
  • Clothing and footwear was up 3.5% due to freight costs
  • Child care costs fell 7.3% due to government subsidies

The following graph of Bloomberg data shows the weighted median and trimmed mean inflation:

Source: Bloomberg

After the release bank bill futures rallied by about 16 basis points in the front end, as you can see below.

The limited reaction further out the curve is due to thin liquidity further out and nothing trading.

Source: Bloomberg

The RBA is unlikely to be resting easy following the release today.

Inflation is still well above its 3% upper target band and is moving the wrong way.

This won’t be enough to warrant a 75bp lift in August, however.

The next key data release will be the Statement on Monetary Policy in early August, which will include updated forecasts.

Some of these forecasts will be referenced at the RBA’s August monetary policy decision. Governor Phil Lowe has previously referenced inflation for 2022 being around 7% following a surge in commodity prices.


About Steve Campbell and Pendal’s Income and Fixed Interest team

Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.

Find out more about  Pendal’s cash funds:

Short Term Income Securities Fund

Pendal Stable Cash Plus Fund

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

Find out more about Pendal’s fixed interest strategies here


This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at July 27, 2022. PFSL is the responsible entity and issuer of units in the Pendal Short Term Income Securities Fund (Fund) ARSN: 088 863 469. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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