Daily Flows & Insights – Domestic Inflation Expected to Remain High Due to ‘Homegrown’ Factors

Daily Flows

  • Investors continue to add duration to their portfolios as we may begin to apporach what the market is betting is the peak of rates.
  • The yield curve remains relatively flat from 1-5 year, with highest levels offered for 5 years, compensating for term risk.
  • A domestic BBB+ has came to market with +50 for 3 months today.

Domestic Inflation Expected to Remain High Due to ‘Homegrown’ Factors

  • Last night, Michelle Bullock addressed the current inflation outlook and the future of monetary policy.
  • She emphasised that going forward, inflation is influenced less by global supply shocks and more by the demand-driven ‘homegrown’ factors.
  • Bullock identified three indicators of demand-driven inflation: widespread increases, escalating costs in the services sector, and a robust labor market.
  • This is particularly evident across all service areas, where price rises remain substantial.
  • The labor market remains strong, with an unemployment rate near a five-decade low of 3.7%.
  • She promptly dismissed the impact immigration has on driving up demand, noting that it may also alleviate inflationary pressures on the supply side by increasing the supply of labour.
  • As always, the RBA is striving for a ‘Goldilocks’ scenario in which employment gains are achieved, and price stability is restored within a reasonable timeframe.
  • The nature of tackling inflation’s implies that low productivity will need correction, potentially involving an increase of unemployment to reduce the cost of output.
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Curve Team
Jack Pedersen