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The ASX 200 is experiencing significant selling pressure following the release of May's Consumer Price Index (CPI) data. After closing up 1.4% on Tuesday, the S&P/ASX 200 Index is on track to relinquish most of those gains today (26 June 2024). As of 3:10 PM am AEST, the benchmark index was down 0.75%.
The Australian Bureau of Statistics (ABS) released the latest Australian inflation data, which immediately triggered a further 0.6% drop in the ASX 200, bringing the intraday decline to 1.1%.
What’s Driving the ASX 200 Down?
Investors, mortgage holders, and many Australians have been hoping for the Reserve Bank of Australia (RBA) to cut the official interest rate from the current 4.35%, especially after 13 rate hikes since May 2022. However, the latest inflation figures have dashed those hopes, pushing any potential rate cuts into 2025 and even raising the possibility of another rate hike.
Consensus forecasts anticipated annualized inflation to reach 3.8%, up from 3.6% in April. National Australia Bank Ltd (ASX: NAB) was slightly more optimistic, predicting a 3.6% year-on-year increase. Unfortunately, the actual data surpassed these expectations.
According to the ABS, the monthly CPI indicator rose 4.0% in the 12 months to May, causing a significant market reaction.
Michelle Marquardt, ABS head of prices statistics, noted that while underlying inflation, which excludes volatile items, edged slightly lower, the overall inflation rate still climbed.
Key Contributors to Rising Inflation
The primary drivers of the increase in CPI inflation in May were housing (up 5.2%), food and non-alcoholic beverages (up 3.3%), transport (up 4.9%), and alcohol and tobacco (up 6.7%).
Government energy rebates played a crucial role in mitigating the rise in electricity prices. "The introduction of the Energy Bill Relief Fund rebates from July 2023 has mostly offset electricity price rises from annual price reviews in the same month," Marquardt explained. Without these rebates, electricity prices would have surged 14.5% in the 12 months to May 2024. With the rebates, electricity prices increased 6.5%, up from 4.2% in April.
Market Outlook
Despite the current turmoil, it's not all doom and gloom for ASX investors. Over the past 12 months, the ASX 200 has gained 10%, demonstrating resilience despite persistent inflation and high-interest rates not seen since 2011.
For investors uncertain about which ASX stocks hold the best potential in the current economic climate, seeking expert advice could be beneficial. The recent inflation data underscores the importance of strategic investment decisions in navigating these volatile market conditions.
