28.01.202602:00:46UTC+00Australia 10Y Yield Falls Despite Hot CPI Data

Australia's 10-year government bond yield recently declined to approximately 4.81%, retreating from its highest point in over two years. This decline occurred even as expectations for a rate increase by the Reserve Bank of Australia (RBA) rose following higher-than-anticipated Consumer Price Index (CPI) data. December's annual inflation rate climbed to 3.8%, surpassing the forecasted 3.6% and up from November’s 3.4%. Additionally, monthly inflation figures exceeded expectations, recording a 1.0% increase compared to the anticipated 0.7%. The quarterly trimmed mean inflation—an important measure for the RBA—registered at 0.9%, slightly below the prior month but still surpassing expectations. This robust underlying price growth enhances the prospects of a rate hike in the upcoming week. In response to the inflation data, Deputy Governor Andrew Hauser remarked that the current inflation rate, exceeding 3%, is "too high." This situation coincides with a recent unexpected decline in unemployment, indicating a stronger-than-expected economy with minimal spare capacity. Consequently, traders have increased the probability of a 25 basis point rate hike at the February 3 meeting to about 72%, up from the prior 63% estimate.