What the latest inflation numbers mean for interest rates | Pendal Group
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What the latest inflation numbers mean for interest rates

What does this week’s big inflation number mean for rates? Here’s a snapshot from Pendal’s head of cash strategies STEVE CAMPBELL

WEDNESDAY’S 7.3 per cent headline inflation number was the highest annual increase since 1990.

The key numbers were:

  • Q3 headline: +1.8% (v 1.6% market forecast), taking the annual rate to 7.3% (v 7% market forecast)
  • Q3 trimmed mean: +1.8% (v 1.5% market forecast), taking the annual rate to 6.1% (v 5.5% market forecast)
  • Q3 weighted median: +1.4% (v 1.5% market forecast), taking the annual rate to 5% (v 4.8% market forecast)

The most significant contributors to the rise in the quarter were new dwellings (+3.7%), gas (+10.9%) and furniture (+6.6%).

New dwelling costs rose due to higher labour costs (due to labour shortages) and material shortages. 

The rate of price growth did ease relative to prior quarters though (+5.6% and 5.7%), reflecting softening new demand and easing supply constraints

Electricity prices rose 3.2% for the quarter. This was offset by subsidies from the WA, Qld and ACT governments. Excluding these, electricity would have risen 15.6% in the quarter.

New dwellings (+20.7%) was also the biggest contributor to the 7.3% annual headline inflation number, followed by and automotive fuel (+18%).

However automotive fuel was down 4.3%, reflecting a fall in the crude oil price.

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What does it mean for investors?

The Reserve Bank was always going another 25 basis points at its meeting on Melbourne Cup day next week.

This inflation data — while higher than expected — does not warrant a bigger move.

One thing the RBA has in its favour over other central banks is its higher meeting frequency.

With the exception of January the RBA meets monthly, as opposed to the six-week cycle of most other central banks.

However today’s data does is make it more likely the RBA will follow up with another 25-point hike in December.

Merry Christmas from the RBA!

What would delay a December hike?

External forces increasing the likelihood of faster deterioration in global economic growth would make them reluctant to tap the brakes further.

The RBA is more than aware of the balance of risks from aggressive central bank policy tightening this year.


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 October 26, 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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