Hot CPI Boosts Market Hike Expectations

• Yesterday’s Q4 trimmed mean CPI, the RBA’s preferred gauge of underlying inflation, printed at 0.9% q/q and 3.4% y/y, coming in above market expectations and reinforcing that inflation momentum remains sticky.
• The result sat above the RBA’s November SoMP forecasts, which had underlying inflation closer to 0.75% q/q and around 3.2% y/y.
• Markets responded quickly, repricing the policy outlook with pricing now implying a 70–75% chance of a 25bp hike at next week’s meeting, increasingly seen as a near-term adjustment rather than the start of a prolonged tightening cycle.
• That view was reflected in rates markets, where Australian bonds rallied despite the firmer inflation print. Three-year futures yields fell 7bps to 4.24%, while 10-year yields eased from 6bps to 4.80%.
• Offshore, the US Federal Reserve held policy steady, as expected, though the decision was split, with Governors Waller and Miran dissenting in favour of a 25bp cut.