Key insights from the week that was.
The January CPI came in above expectations, prices rising 0.4% in the month and 3.8%yr (WBC 3.6%yr; consensus 3.7%yr). On a seasonally adjusted basis, price growth was a touch firmer at 0.5%. Electricity, garments and footwear were the key supports in the month. A portion of this strength was netted out of the core inflation calculation, however, the trimmed mean gaining 0.3% in the month as expected to be up 3.4%yr. We view the detail of this release as consistent with our existing forecast for the March quarter, which is 0.9%, 3.5%yr for trimmed mean inflation and 1.1%, 3.8%yr for the headline measure.
This week’s investment partials point to some modest downside risks for next week’s Q4 GDP. However, the longer-term view is favourable. Construction activity highlighted the rotation underway from public to private investment. And, inclusive of construction and equipment spending, private CAPEX surprised on the upside, growing 7.8% over the year to December. Underlying the headline CAPEX result, investment in buildings and structures rose robustly in the quarter and had breadth across non-mining industries, but it was offset by a pull-back in spending on data-centre related equipment. Excluding the impact of data-centre CAPEX, non-mining investment in machinery and equipment increased a healthy 3.0% in the quarter. CAPEX plans point to the current growth pace being maintained through the remainder of FY2026 for a 7.6%yr inflation-adjusted gain. The first estimate for FY2027 implies growth will continue beyond June too.
A full preview for next week’s Q4 GDP report will be released later today on Westpac IQ. And, for an in-depth view of Australia’s businesses, refer to the latest Westpac Quarterly Business Snapshot. Meanwhile, Chief Economist Luci Ellis’ focus this week has been AI’s effect on job specification, productivity and labour demand.
In the US, last Friday the Supreme Court struck down US President Donald Trump’s use of the International Emergency Economic Powers Act to institute country-specific tariffs. Whether refunds will be required is still to be determined. But, to shore up future revenue collection, President Trump immediately instituted a 10% global tariff under Section 122 of the 1974 Trade Act and threatened to lift the rate to 15%. Note though, this avenue is only available for up to 150 days without Congressional approval – an immense challenge right before the mid-term elections. The net effect is a temporary marginal increase in the US’ effective tariff rate, but with some countries experiencing a more material increase (or decrease) depending on their starting position. President Trump intends to hold individual nations to agreed deals and industry tariffs remain valid. For some countries though, holding to their agreed deal will put them at a disadvantage. So far, leaders of countries impacted have largely kept quiet, taking time to assess the implications.
Also received late last week, US GDP surprised to the downside in Q4, activity rising 1.4% annualised against a 2.8% expectation. Personal consumption gained 2.4% annualised, however, in line with the historic trend, and non-residential investment maintained a moderate pace of growth, 3.7% annualised. Offsetting was another decline in residential investment, -1.5% annualised, and government consumption falling 5.1% annualised because of the shutdown – Federal Government spending plunged 16.6% annualised. Despite the disappointment, we remain of the view that the US’ underlying pulse is consistent with momentum at or above trend through 2026, fuelled by a tight labour market and robust nominal wage gains. However, we remain mindful of the downside risks posed by cost-of-living pressures – nominal personal spending increased by 0.4% in December, but real spending lifted just 0.1%.
Over in Japan, Prime Minister Takaichi appointed two new members to the Bank of Japan’s policy board, Ayano Sato and Toichiro Asada. Both are considered to be dovish but replace members who have exercised caution on further rate increases, seeing the Board become only marginally more dovish. In a speech this week, member Hajime Takata did not comment on the new appointments but did note the BoJ can step in in times of excessive bond market volatility. We hold the view that while there may be volatility in the short term, fundamentals point to the 10-year bond yield falling to 2.0% over time. On monetary policy, Takata said little on the policy outlook, noting only that the Board is not on a pre-set path and highlighting the importance of the currency to inflation.
. On a seasonally adjusted basis, price growth was a touch firmer at 0.5%. Electricity, garments and footwear were the key supports in the month. A portion of this strength was netted out of the core inflation calculation, however, the trimmed mean gaining 0.3% in the month as expected to be up 3.4%yr. We view the detail of this release as consistent with our existing forecast for the March quarter, which is 0.9%, 3.5%yr for trimmed mean inflation and 1.1%, 3.8%yr for the headline measure.){kind=link}