- Trading
- Trading
- Markets
- Markets
- Products
- Forex
- Commodities
- Metals
- Indices
- Shares
- Cryptocurrencies
- Treasuries
- ETFs
- Accounts
- Accounts
- Compare our accounts
- Our spreads
- Funding & withdrawals
- Open account
- Try free demo
- Platforms & tools
- Platforms & tools
- Platforms
- Platforms
- Platforms overview
- MetaTrader 4
- MetaTrader 5
- Mobile trading platforms
- Premium trading tools
- Premium trading tools
- Tools overview
- VPS
- Genesis
- Education
- Education
- Resources
- Resources
- News & analysis
- Education hub
- Economic calendar
- Earnings announcements
- Help & support
- Help & support
- About
- About
- About GO Markets.
- Our awards
- Sponsorships
- Client support
- Client support
- Contact us
- FAQs
- Quick support
- Holiday trading hours
- Fraud and scam awareness
- Legal documents
- Trading
- Trading
- Markets
- Markets
- Products
- Forex
- Commodities
- Metals
- Indices
- Shares
- Cryptocurrencies
- Treasuries
- ETFs
- Accounts
- Accounts
- Compare our accounts
- Our spreads
- Funding & withdrawals
- Open account
- Try free demo
- Platforms & tools
- Platforms & tools
- Platforms
- Platforms
- Platforms overview
- MetaTrader 4
- MetaTrader 5
- Mobile trading platforms
- Premium trading tools
- Premium trading tools
- Tools overview
- VPS
- Genesis
- Education
- Education
- Resources
- Resources
- News & analysis
- Education hub
- Economic calendar
- Earnings announcements
- Help & support
- Help & support
- About
- About
- About GO Markets.
- Our awards
- Sponsorships
- Client support
- Client support
- Contact us
- FAQs
- Quick support
- Holiday trading hours
- Fraud and scam awareness
- Legal documents
- Home
- News & Analysis
- Articles
- Central Banks
- Trading the Inflation bumps – The May surprises and what to do with it
- Home
- News & Analysis
- Articles
- Central Banks
- Trading the Inflation bumps – The May surprises and what to do with it
- Fuel: Prices declined significantly in May, more than offsetting April’s increase. However, they rose again during June to over 200c/l.
- Food: Inflation eased modestly over the year, with restaurant meals and takeaway food prices moderating on weak demand.
- Rents: Returned to the average 0.7% monthly after the temporary rent assistance indexation.
- Clothing & Footwear: April’s unexpected price increase is expected to reverse in May amid ongoing weak retail conditions and the onset of end-of-financial-year sales.
- Electricity: Victoria’s rebates expire, with significant price drops anticipated from July due to new federal and state rebates.
News & AnalysisNews & AnalysisTrading the Inflation bumps – The May surprises and what to do with it
25 June 2024 By Evan LucasThe consensus for the monthly Consumer Price Index (CPI) is for a rise to 3.8% annually in May, the range being 3.6% to 4.0%. This would be the fourth consecutive rise in yearly inflation and would show that not only is inflation ‘sticky’ it could be considered ‘entrenched’
Monthly CPI indicator YoY%
This headline will cause large initial reactions from both the FX and bond markets. Considering the hawkishness in which the governor has spoken about getting inflation back to target inside its 18-month timeframe the market will see this as another confirmation that the August meeting is more than just live but a very probable moving event.
You only have to look here at the 30-day interbank market to see long calls are being made although not at a large scale (yet).
Since breaking out in late May on signs inflation has become sticky and rate rises rather than cuts are the more likely RBA response in the near term. The pair has become range bound between $0.658 and $0.672.
AUD/USD
Which brings us as to why May might be the last CPI rise before it begins a long slow decline into the target range.
Notable Influences on May Inflation
Firstly, we need to point out that May 2023 has several factors come into play that will create an artificial upside. For example, the expiration of electricity rebates in Melbourne there are several other similar government interventions that also impact in the same way. Then there is the persistent high inflation in sectors like insurance, which will obscure the declining progress being made in market services inflation.
Now we need to highlight that the consensus view is the downward trend will resume in June, consensus forecasting (remembering that there is a lot of data that can shift this ahead of the July 31 release) for Q2 2024 headline CPI sits a 3.6% annually the RBA’s Statement of Monetary Policy (SoMP) is at 3.8%.
Prices were unusually weak in May last year, due to significant drops in domestic travel (-15.5% monthly) and fuel (-6.7% monthly), which together account for approximately 7% of the CPI basket.
Large declines of this nature are not expected to repeat this year. Additionally, rebates and changes to electricity prices as energy rebates in Victoria expire, contrasting with the quarterly payments in other states this explains why consensus has CPI falling post May.
On electricity pricing expectations are for prices to fall by around 20% in July as new rebates are introduced.
Consensus also anticipates a significant drop in clothing and footwear prices, reversing the April increase. The growth in average monthly spending on clothing and footwear shown in the latest credit card data was the lowest for May since the pandemic.
Then you have the seasonal decline in holiday travel and accommodation prices post-school holidays. Put this all together and it should make plain that Wednesday’s CPI monthly read could be a trap for traders.
Why? Yes continued rise in the monthly CPI indicator will be unwelcome news for the Reserve Bank of Australia (RBA). However, the RBA has emphasised that the quarterly CPI release remains the benchmark inflation figure in Australia.
With that being the case – watch for snap back in any bullish moves in the currency. Because although its challenging to predict the trimmed mean CPI based on monthly CPI indicators. Expectations are that core CPI (which can vary significantly from the quarterly trimmed) comes between 0.8% and 0.9% quarterly.
This will be refined post the May CPI but all the same it is likely to be lower quarter on quarter.
If we use the RBA’s latest forecasts the headline rate 1.0% on a quarterly basis (3.8% annually). Trimmed mean CPI is sitting at 0.8% on a quarterly basis (3.8% annually).
These are the keys to trading CPI going forward as the underlying detail will be key.
First break out market services. Watch meals out and takeaway, hairdressing services, insurance, sporting and cultural services, and sports participation.
Then we need to see modest consumer spending growth for discretionary items and an easing in wages growth this would result in further disinflation for market services, which is paramount to getting inflation back into the target band.
CPI Breakdown for May
Category April Weight Annual % Change Monthly % Change Expected Annual % Change Food and non-alcoholic beverages 17% 3.8 0.4 3.1 Alcohol and tobacco 7% 6.5 0.0 6.4 Clothing and footwear 3% 2.4 -2.2 2.1 Housing 22% 4.9 0.5 5.3 Furnishings, household equipment & services 8% -0.8 0.3 -0.8 Health 6% 6.1 0.0 6.1 Transport 11% 4.2 -0.7 5.6 Communications 2% 2.0 0.5 1.7 Recreation & culture 13% -1.3 -3.3 -0.1 Education 4% 5.2 0.0 5.2 Insurance & financial services 5% 8.2 0.6 7.6 CPI Indicator – 3.6 -0.3 3.7 Ready to start trading?
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice.
Next Article
Trading the inflation bumps Part 2: Narrow to non-existent
First – let us just say that as we suspected the AUD jolted all over the place on the release of the May CPI – the read was much stronger than consensus and the fallout from the read ongoing. But, and it’s a but, we predicted the AUD’s initial bullish reaction was counted by once again point to the fact parts of the monthly read can be expl...
June 28, 2024Read More >Previous Article
A frightened Hawk – The RBA needs to come clean
We know that this is slightly contrary to the consensus views but we think it needs to be said. The communication from the RBA (Reserve Bank of Austra...
June 20, 2024Read More >We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies. You can view our cookie policy here.Manage consentPrivacy Overview
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.Cookie Duration Description AWSALBCORS 7 days This cookie is managed by Amazon Web Services and is used for load balancing. cookielawinfo-checkbox-advertisement 1 month Set by the GDPR Cookie Consent plugin, this cookie is used to record the user consent for the cookies in the "Advertisement" category . cookielawinfo-checkbox-analytics 1 month This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics". cookielawinfo-checkbox-functional 1 month The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". cookielawinfo-checkbox-necessary 1 month This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary". cookielawinfo-checkbox-others 1 month This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. cookielawinfo-checkbox-performance 1 month This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance". elementor never This cookie is used by the website's WordPress theme. It allows the website owner to implement or change the website's content in real-time. PHPSESSID session This cookie is native to PHP applications. The cookie is used to store and identify a users' unique session ID for the purpose of managing user session on the website. The cookie is a session cookies and is deleted when all the browser windows are closed. viewed_cookie_policy 1 month The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data. _GRECAPTCHA 5 months 27 days This cookie is set by Google. In addition to certain standard Google cookies, reCAPTCHA sets a necessary cookie (_GRECAPTCHA) when executed for the purpose of providing its risk analysis. __cfruid session Cloudflare sets this cookie to identify trusted web traffic. Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.Cookie Duration Description CONSENT 16 years 3 months 17 days 20 hours These cookies are set via embedded youtube-videos. They register anonymous statistical data on for example how many times the video is displayed and what settings are used for playback.No sensitive data is collected unless you log in to your google account, in that case your choices are linked with your account, for example if you click “like” on a video. SPSI session This cookie is used for setting a unique ID for the session and it collects user behaviour on the website during the session. This collected information is used for statistical purposes. vuid 2 years Vimeo installs this cookie to collect tracking information by setting a unique ID to embed videos to the website. _ga 2 years The _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors. _gat_UA-2467324-17 1 minute This is a pattern type cookie set by Google Analytics, where the pattern element on the name contains the unique identity number of the account or website it relates to. It appears to be a variation of the _gat cookie which is used to limit the amount of data recorded by Google on high traffic volume websites. _ga_9P2FTXTH5P 2 years This cookie is installed by Google Analytics. _gcl_au 3 months Provided by Google Tag Manager to experiment advertisement efficiency of websites using their services. _gid 1 day Installed by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously. _uetsid 1 day This cookies are used to collect analytical information about how visitors use the website. This information is used to compile report and improve site. Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.Cookie Duration Description IDE 1 year 24 days Google DoubleClick IDE cookies are used to store information about how the user uses the website to present them with relevant ads and according to the user profile. MUID 1 year 24 days Bing sets this cookie to recognize unique web browsers visiting Microsoft sites. This cookie is used for advertising, site analytics, and other operations. NID 6 months NID cookie, set by Google, is used for advertising purposes; to limit the number of times the user sees an ad, to mute unwanted ads, and to measure the effectiveness of ads. test_cookie 15 minutes The test_cookie is set by doubleclick.net and is used to determine if the user's browser supports cookies. VISITOR_INFO1_LIVE 5 months 27 days A cookie set by YouTube to measure bandwidth that determines whether the user gets the new or old player interface. YSC session YSC cookie is set by Youtube and is used to track the views of embedded videos on Youtube pages. yt-remote-connected-devices never YouTube sets this cookie to store the video preferences of the user using embedded YouTube video. yt-remote-device-id never YouTube sets this cookie to store the video preferences of the user using embedded YouTube video. yt.innertube::nextId never These cookies are set via embedded youtube-videos. yt.innertube::requests never These cookies are set via embedded youtube-videos. Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.Cookie Duration Description AWSALB 7 days AWSALB is a cookie generated by the Application load balancer in the Amazon Web Services. It works slightly different from AWSELB. DEMO_FORM_PCODE past No description geot_rocket_city session No description available. geot_rocket_country session No description available. geot_rocket_state session No description available. ms-uid 1 year No description available. SPSE session No description available. STYXKEY_geot_country session No description _uc_current_session 1 hour No description available. _uc_initial_landing_page 1 month No description available. _uc_last_referrer 1 month No description available. _uc_referrer 1 month No description available. _uc_visits 1 month No description available. _uetvid 1 year 24 days No description available. Please share your location to continue.
Check our help guide for more info.