Inflation news yesterday wasn’t good for mortgage rate worriers and here’s why.

The inflation news was in yesterday and it wasn’t good for mortgage rate worriers. The key measure the Reserve Bank monitors to assess if a cut or rise is necessary was on the high side, so the expectations of a 0.25% rate rise next Tuesday have heightened among economists.

The statistic in question is the CPI’s trimmed mean, which gives the central bank an insight into the persistent price movements of the core or underlying inflation that the RBA wants around the mid-point of the 2-3% band. It actually eliminates too big and too low price changes that could over-influence the inflation reading.

This number came in for the December quarter at 0.9% taking the annual rise to 3.3%, which is outside the 2-3% band. Worse still, the previous reading was 3.2%, so there’s a rising trend.

While I’d argue if the trimmed mean came in at 3.1%, the RBA board might have given the mortgage belt a “stay of execution”, instead I won’t be surprised if the cash rate is lifted from the current 3.6% to 3.85% next Tuesday.

By the way, the more volatile headline inflation rate for the year to the end of December was 3.8%, up from 3.4%, which will be another reason the RBA might want to hose down the buying of ‘stuff’ that’s clearly making price-setting businesses raise what they charge us. This chart graphically shows the U-turn that our inflation has taken since the middle of the year after we received three rate cuts.

This has led to critics of Governor Bullock and her board for cutting too early and too much.

Interestingly, the Government-commitment to saving the planet continues to push up energy bills. These bigger-than-expected inflation readings haven’t been helped by the end of energy rebates. This is bad news, especially as we’re being told that our power bills look set to rise by 20% this year!

The second most important driver of higher inflation was insurance costs. Zyft consumer finance expert Joel Gibson told news.com.au that “all of these increases combined would mean an average Australian household should stand to shell out an additional $2,192 over the course of this year.”

Betashares chief economist David Basanese looks on the money when he said: “All up, it appears to be game, set, match for a rate rise at the February policy meeting.”

And Basanese doesn’t rule out another rise in May. The only way he could be wrong would be if unemployment starts to rise and the CPI readings monthly and quarterly show that they’re on the slide.

Before these CPI revelations yesterday ANZ and While Westpac wasn’t in the ‘rate rise in February’ camp, they are now, joining the CBA and NAB economics teams who are all arguing Tuesday will bring a 0.25% rate rise, which makes it easier for Bullock to jack up rates.

The combined effects of a stronger-than-expected economy with falling unemployment and rising inflation means rate increases are to be expected. In the US overnight, Jerome Powell (who heads up the US central bank that’s known as the Federal Reserve) resisted Donald Trump’s call for another rate cut, arguing the economy is on the improve and doesn’t need one now.

The Fed’s statement said: “Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated.”

Like here, inflation is the maker or breaker for rate cuts. Until it falls, we and the Yanks won’t see any more cuts. By the way, rate rises aren’t good news for stock prices and our super, though the outlook for our resources stocks is positive and that should provide some support for our overall market, which feeds into our super balances.