The ASX is down with the financial sector hit hardest.
The S&P/ASX200 has so far dropped 211.70 points or 2.97% to 6,927.80, setting a new 100-day low.
This index has lost 6.49% for the last five days, but has gained 1.51% over the last 52 weeks.
Bottom-performing stocks in this index at time of writing are Gold Road Resources Ltd (ASX:GOR) down 8.00% and Novonix Ltd (ASX:NVX) down 7.16%.
The four major banks were all down, while Macquarie fell 2.6-3%.
Other heavyweights to fall so far are Telstra down 2.5%, James Hardie down 3.4% and Goodman Group (ASX:GMG) down 1.8% after surging 3% on Monday.
CPI rises
The big news today is the rise in CPI.
Q4 CPI data has beaten estimates, which has sent bond yields and the Australian dollar higher, but has obviously weighed heavily on the ASX.
CPI has risen 3.5%.
Here are the numbers:
- Headline CPI rose 1.3% quarter on quarter and 3.5% year on year versus 1% and 3.2% expected.
- Trimmed mean CPI rose 1% Q/Q and 2.6% Y/Y compared with 0.7% and 2.3% expected.
- Weighted median CPI rose 0.9% Q/Q and 2.7% Y/Y instead of 0.7% and 2.3% as expected.
What has led to the rise?
Petrol increases and high construction costs have driven CPI higher in the December quarter.
According to the Australian Bureau of Statistics, new dwelling purchases have seen a 4.2% price rise.
Construction has been hit by a shortage of materials and labour at a time of high levels of building.
Petrol is 6.6% more expensive for consumers (and could continue to rise). Fuel prices have risen for the sixth consecutive quarter – its strongest annual rise since 1990 and due to higher global oil prices and a supply crunch.
“Fuel prices rose again in the December quarter, resulting in a record level for the CPI’s automotive fuel series for the second consecutive quarter,” Australian Bureau of Statistics head of price statistics Michelle Marquardt said.
Households are suffering as non-discretionary inflation, which includes expenses such as food, petrol, housing and health costs, has grown a significant 4.5% over 2021.
The CPI has fallen in Communication down 0.5% and clothing down 0.3% - the only sectors that saw prices fall in 2021.
It is likely that with these figures the RBA will have no choice but to end the quantitive easing (QE) program.
"The Bank has signalled that getting underlying inflation to the mid-point of its target band wouldn’t be enough to justify a rate hike, it would also need to see wage growth above 3%," Capital Economics economist Ben Udy says.
"But our forecast for wage growth to firm up over the course of this year means the Bank should have enough evidence to hike rates by November."
The trimmed mean
Trimmed mean inflation is the RBA’s preferred measure of price change. It is up 1.0% to 2.6% and now falls well within the RBA’s target band.
It generally determines how under siege households are.
The RBA states, “The trimmed-mean rate of inflation is defined as the average rate of inflation after 'trimming' away a certain percentage of the distribution of price changes at both ends of that distribution. ... Different degrees of trimming are possible and will provide different estimates of underlying inflation."
“Trimmed mean inflation is the highest since 2014, reflecting the broad-based nature of price increases, particularly for goods,” Marquardt said.
The RBA expected core inflation would not reach 2.5% until the end of 2023, a major reason it did not expect to hike rates this year.
The RBA will now be revising its policy, despite stating that interest rates would not rise until 2023/24.
On the small cap front
Strategic Elements Ltd (ASX:SOR) is 8.51% higher. SOR has made a breakthrough in the development of Battery Ink cells that generate electricity directly from interaction with moisture by achieving a 150% increase in electrical charge.
Brookside Energy Ltd (ASX:BRK) is 5.00% higher. BRK has started constructing the all-weather multi-well pad for drilling of the Flames Well in the SWISH Area of Interest (AOI) in Oklahoma’s world-class Anadarko Basin.
Krakatoa Resources Ltd (ASX:KTA) is 1.92% higher. KTA has successfully completed an extensive versatile time domain electromagnetic (VTEM™ Max) survey, defining 52 VTEM conductors of which 20 are strong, high-priority targets.