High inflation figures and low unemployment figures and strong...

High inflation figures and low unemployment figures and strong demand figures are screaming that there should be a rise of at least 0.5% on Tuesday. Fat chance. The RBA has a track record of saying that future inflation and interest rates will be low, and has a track record of keeping interest rates low, and the RBA pivoted early, and the RBA makes life easy for itself by setting a more easily achievable inflation target than other countries do (for example, the RBA inflation target is 50% higher than the FOMC inflation target).

Interest rates usually have to match inflation for high inflation to be brought properly under control. In Australia, interest rates are currently less than half the rate of inflation, and will still be less than half after the next interest rate rise, whatever the rise turns out to be.


USA
Inflation: 6.5% and falling
FOMC interest rate: 4.5% - 4.75%
FOMC inflation target: 2%

Australia
Inflation: 7.8% and still rising according to the ABS.
RBA interest rate: 3.1%
RBA inflation target: 3%



My Predictions for Tuesday's RBA Rate Decision and for the XJO

Based on the RBA's track record, I predict that there will be a token interest rate rise of either 0.15% or 0.25%.

For individual companies, this will mean higher book profits in monetary terms, even if intrinsic values fall due to inflation eroding the value of money. It will mean that a low interest rate policy is firmly locked in place, which means that companies can be confident that money will continue to be ridiculously cheap. The ability of companies to raise prices will be exceptionally good because inflation and corresponding wage increases will continue to be high. If I am correct, I think that this will all be bullish for the XJO.