The S&P/ASX 200 Index (ASX: XJO) was struggling in morning trade prior to the publication of the latest Consumer Price Index (CPI) data. The benchmark index was down more than 0.5% in early trade and down 0.2% right at 11:30am AEST.
Following the release of the monthly CPI data from the Australian Bureau of Statistics (ABS), which hit the wires at 11:30, the ASX 200 initially gained 0.1% before giving most of those gains back.
Here's the latest on the ongoing battle with inflation in Australia.
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Why are ASX 200 investors hedging their bets?
Inflation can drag on ASX 200 shares in several ways.
First, high inflation causes pricing uncertainty, ever higher wages, and can crimp real economic growth.
Second, as you're likely aware, high inflation has led the Reserve Bank of Australia (RBA) to ratchet up interest rates over the last 16 months. Higher interest rates throw up headwinds for most ASX 200 stocks.
Today, the ABS reported that the CPI indicator rose 5.2% in the 12 months to August.
That's higher than the 4.9% reported for the 12 months to July last month. But it's comfortably below peak levels of 8.4% recorded in December.
The biggest contributors keeping annual CPI elevated in Australia were a 6.6% increase in housing, a 7.4% increase in transport costs, and an 8.8% lift in insurance and financial services. Food and non-alcoholic beverages prices also increased by 4.4%.
So, with the annual CPI indicator of 5.2% up from last month, and far higher than the RBA's target range of 2% to 3%, why is the ASX 200 holding its ground?
That could be because while headline inflation increased underlying inflation actually came down, potentially bolstering the case for the RBA to hold interest rates steady.
Commenting on the underlying inflation, ABS head of prices statistics Michelle Marquardt said:
CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel. It can be helpful to exclude these items from the headline CPI to provide a view of underlying inflation.
When excluding these volatile items from the monthly CPI indicator, the annual rise of 5.5% in August is lower than the annual rise of 5.8% in July,
Well, that's a bit of a mixed bag on the inflation front today.
It may be enough to keep rates on hold. But it does reinforce the outlook for rates to remain higher for longer, which looks to be keeping a lid on the ASX 200 performance today.
