ASX 200 tumbles as inflation surprises to the upside

a man with a moustache sits at his computer with his hands over his eyes making a gap between his fingers so he can peek through to his computer screen.

a man with a moustache sits at his computer with his hands over his eyes making a gap between his fingers so he can peek through to his computer screen.

The S&P/ASX 200 Index (ASX: XJO) was in the green today right up to 11.30am AEDT. Then the benchmark index tumbled 0.6% in a matter of minutes.

That came right after the Australian Bureau of Statistics (ABS) released its inflation data for the December quarter.

As you’d expect by the fall in the ASX 200, those inflation figures came in higher than market expectations.

What did the ABS report?

The ABS revealed that the Consumer Price Index (CPI) increased 1.9% in the December quarter, bringing the annual inflation rate to 7.8%.

That’s significantly higher than economists’ consensus forecasts of a 1.6% quarterly increase and 7.6% annual inflation rate. And ASX 200 investors are responding by hitting the sell button today, following a remarkably strong run for the benchmark index so far in 2023.

Commenting on the data, ABS head of prices statistics Michelle Marquardt said:

This is the fourth consecutive quarter to show a rise greater than any seen since the introduction of the Goods and Services Tax (GST) in 2000. The increase for the quarter was slightly higher than the quarterly movements for the September and June quarters last year, both 1.8%.

The 7.8% year-on-year increase in the CPI was predominantly driven by a 17.8% increase in new dwelling prices, a 19.8% increase in the cost of domestic holiday travel and accommodations, and a 13.2% increase in the price of automotive fuel.

Why is the ASX 200 under pressure today?

As mentioned up top, the latest inflation figures have come in higher than the market had priced in. And that’s seeing some selling action on the ASX 200 as we head into the lunch hour.

The higher figures matter because it’s now more likely that investors can expect another interest rate hike from the Reserve Bank of Australia (RBA).

In an effort to bring inflation back under control, the RBA has already instituted eight consecutive monthly interest rate increases. That commenced with the 0.25% lift on 4 May, which brought the official cash rate to 0.35%.

Today the cash rate stands at 3.10%. And ASX 200 investors are on tenterhooks as to the central bank’s next decision when the board meets on Tuesday, 7 February.

With inflation still running hot, the odds of the RBA taking a pause in its tightening path have grown far slimmer.

“Inflationary pressures have not peaked as expected, so we can expect rate hikes to continue or even increase,” ASX equities analyst at Stake, Dylan Zhang, said.

“It’s likely we’ll see a 25bps hike at the next RBA meeting, but a 50bps hike is not unthinkable,” he added.

The post ASX 200 tumbles as inflation surprises to the upside appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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