Inflation numbers for March weren’t quite as bad as expected, but were still pretty terrible.
🙈 Headline CPI was 4.6% YoY ( ⬆️ 0.9% )
🙈 Trimmed mean was 3.3% YoY ( ↔️ )
🙈 Non-Tradeable inflation was 4.6% ( ⬇️ 0.4% )
🙈 Tradeable inflation was 4.5% ( ⬆️ 3.2% )
🙈 Transport was up 8.9% YoY ( ⬆️ 9.1% ) and automotive fuel rose 32.8% in the month ⚠️
This is clearly a bad print. Inflation was already running far too hot and the spike caused by the ongoing crisis in the middle east only made things worse. The downside is that inflation is almost certainly going to go higher. March only captures the first few weeks of the fuel price spike and second order effects will take months as freight, logistics, and raw material increases flow through to consumer prices. A lot of these prices increases are already locked in, its just takes from for the to flow through the economy and show up in CPI figures.
Unfortunately, the RBA is now between a rock and a hard place. Headline inflation is miles outside the target band and heading higher while inflation expectations are rapidly becoming unanchored (ANZ-Roy Morgan has expectations are 6.6%). The RBA can’t sit on its hands while inflation accelerates and expectations spiral so they will have to raise rates, but that’s going to have significant impacts for both growth and employment. There are no good answers here, but runaway inflation is so damaging that further rate increases are the best of their bad options.
For businesses, this is a squeeze from both ends. Higher rates coupled with more expensive essentials mean households have less money to discretionary spending. At the same time, the cost of inputs, financing, and transport for business is going up. There’s also the risk that wages start chasing higher cost of living, pushing up employment costs.
Businesses that are already stretched on margins or reliant on variable rate finance need to be stress testing their numbers now. The combination of falling demand and rising costs is a combo that kills businesses that aren’t prepared and actively managing the risk.