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AU February CPI preview and what's next for ASX 200

According to figures released today by the Australian Bureau of Statistics (ABS), Australian retail turnover rose 0.2% in February.

Source: Bloomberg

Ben Dorber, ABS head of retail statistics, said retail sales rose modestly in February and appear to have levelled out after a period of increased volatility over November, December and January.

Why is today's retail sales data important for the RBA?

The Minutes from the RBA's March Board meeting noted that it would be appropriate to pause its rate hiking cycle "at some point" to assess the effects of prior rate hikes. As part of its considerations, it would closely watch incoming employment, inflation, business surveys and retail sales data.

The latest updates of those criteria showed:

  • Employment data (released in mid-March) was stronger than expected
  • Consumer confidence remains at GFC levels. Business Confidence is softening
  • The Australian Composite PMI fell in March to 48.1 vs 50.6 in February
  • Retail Sales are down 1.5% over the three months to February.

What about inflation?

Wednesday sees the release of the Monthly CPI indicator for February, a relatively new economic indicator that shot to prominence in the accompanying Statement from the March Board meeting. "The monthly CPI indicator suggests that inflation has peaked in Australia".

The Monthly CPI indicator was also referred to extensively in the Meeting Minutes, which noted that tomorrow's release would include quarterly data on "domestic services inflation, which was not available in the January release".

Domestic services inflation data encompasses restaurants & takeaway, hairdressing, urban transport fares, communication, as well as audio-visual & computing services and hobbies.

For the record, the market expects the monthly CPI indicator to increase by 7.2% in February from 7.4% in January. The range of estimates extends from 6.7% to 7.7%.

What does it mean for the RBA meeting next week?

Given that the balance of data has slowed in recent months and due to the uncertainty created by the banking crisis, if tomorrow's monthly inflation indicator prints at or below the 7.2% expected, there is a good chance that the RBA will keep the cash rate unchanged at 3.60% next week.

Aware that a print of 7.5% or higher would likely see the rates market rush to price in a rate hike at next week's Board Meeting.

What does it mean for the ASX 200?

The ASX 200 is trading at 7042, +80 points (1.15%), on track for its best day since Mid-January. Leading the charge, the heavyweight Energy (+3.98%), Materials (2.28%) and Financial (+1.36%) sectors.

Today's rebound is in line with the view that the ASX 200 has been looking for a low.

Providing it holds above support at 6900, the pullback from the February 7567 high is viewed as a countertrend (an "ABC" Elliott Wave correction) and we expect the rally to extend initially towards 7200 before 7350.

ASX 200 daily chart

Source: TradingView
  1. TradingView: the figures stated are as of March 28th, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

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