Today is I-day, which is a new name I’ve created to underline the importance of what happens in Australia for a lot of people who are suffering and in great need for overdue relief. “I” stands for inflation, and right now it’s imposing pressure on those with home loans, those who invest in stocks and the 13 million plus Aussies who have a super fund.

However, most of these people mightn’t know their fund has been hurt by the failure of inflation to fall sufficiently for the Reserve Bank of Australia to start cutting rates. In simple terms, if inflation falls more than expected today, it puts us closer to the day when the RBA cuts. The consensus thinks it should be September. However, it will be earlier, if inflation drops quicker than expected and the economy slows quicker than economists ‘guess’ it will right now.

By the way, the recent sell-off of stocks last week was related to three I’s: Inflation, Israel, and Iran. Stock prices have risen two out of two days this week because Iran’s foreign minister scoffed at Israel’s attack on Isfahan as akin to being bombed by a child’s toy!

The market took that as maybe Iran has flexed its muscle, but it doesn’t want a war and stocks went up on Monday. They’ve gone up again overnight on Wall Street but this time there were other pluses for stocks.

On top of less geopolitical concerns out of the Middle East, the US stock market liked news that manufacturing data hit a four-month low, with the S&P Global Flash U.S. manufacturing PMI reading going to 49.9, down from 51.9 in March. That implied the US economy might be slowing and that will help lower inflation. As a response, the benchmark 10-year Treasury yield went lower.

This is another good omen for US inflation. Remember, right now, the Yanks are worried they mightn’t see a rate cut this year after starting the 2024 thinking at least five cuts were coming. So, any data that says the economy is slowing helps the Federal Reserve in the States and our RBA get closer to a rate cut.

That’s why I-days are important here and in the US. While we get our March quarter Consumer Price Index today, on Friday in the US, the Fed gets to see what it thinks is the best gauge of American inflation — and that’s a statistic called the Personal Consumption Expenditure (PCE) index.

If both inflation readings come in on the downside, it will be good for bringing rate cuts closer and also good for stock markets, provided things don’t hot up in the Middle East.

In regard to our CPI, this is the important information to remember:

1. The SMH’s Shayne Wright says “… inflation is expected to fall to its lowest levels since the third wave of COVID-19 swept through the country.”
2. Economists’ best guess is inflation will hit a 2½-year low of about 3.5%
3. The CPI in the December quarter was 4.1%, so 3.5% would be progress.
4. Rents, education, health, and insurance are tipped to be the problem for the CPI’s reduction.
5. The RBA wants inflation in the 2-3% band or close to it and that’s when rate cuts will happen.
6. On the other hand, if economic slowdown numbers look more worrying to the RBA, it could move earlier on rate cuts, so data drops will be crucial in coming weeks and months.

While inflation is a killer for the cost of living experience for households, Shayne Wright tells us tax increases have added to our hip pocket hit.

Over 2022-23, the ABS says the tax take per person for the Federal Government rose 10% or $2,100!

And Shayne says we lost $2,600 in the year before!

Also, state governments have had their hands in your hip pocket, with Victoria taking the most from business and residents to the tune of $5,795. Victorians can thank Dan Andrews for that milestone.

The combined wack of 13 rate rises, the inflation hit on our real wages and what those pay packets can buy, along with this tax take, has to slow our economy down. And if that slowdown happens faster than the RBA and economists expect, then they will cut interest rate earlier than they all expect.

Today’s I-day could bring us closer or push us further away from our first rate cut.