What happened
Australian Bureau of Statistics data showed household spending rose 1.1% in July, almost four times the forecasted 0.3% increase. This followed July CPI data indicating trimmed mean inflation was stuck at 3.6% annually and headline inflation reached 3.5%. The RBA had previously raised the cash rate by 75 basis points in the first half of the year.
Why it matters here
Strong consumer spending complicates the RBA's efforts to bring inflation back inside its 2% to 3% target band. If consumer demand remains elevated, Australian equity investors face higher discount rates, while fixed-income portfolios may reprice to reflect tighter cash rate expectations. Money markets now heavily price in a 25 basis point hike in November.
What to watch
Monitor upcoming monthly consumer expenditure prints and official labour market statistics leading into the Reserve Bank board's upcoming September and November policy meetings for signs of cooling demand.
Source
marketindex.com.au