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Aussie shares sink on inflation shock, hike fears

The ASX200 fell on Wednesday after a hotter-than-expected inflation print. Picture: NCA NewsWire / Christian Gilles
The ASX200 fell on Wednesday after a hotter-than-expected inflation print. Picture: NCA NewsWire / Christian Gilles

The Australian sharemarket tumbled lower on Wednesday after an elevated inflation print renewed fears of possible rate hikes.

The benchmark ASX200 fell 55.8 points, or 0.7 per cent, to close at 7783 points, while the broader All Ordinaries index declined 54 points, or 0.67 per cent, to finish at 8022.9.

Tech stocks lifted 0.2 per cent to close at 3113.8.

Eight of 11 industry sectors ended in the red, led by the rate-sensitive real estate sector with a sharp 2.04 per cent fall.

Stockland slumped 2.87 per cent to $4.40 a share, Scentre Group fell 2.16 per cent to $3.17 and Mirvac Group fell 2.04 per cent to $1.92.

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The monthly consumer price index jumped to 4 per cent in the year to May, the Australian Bureau of Statistics reported on Wednesday, up from 3.6 per cent in April.

Economists had expected a more modest increase of 3.8 per cent.

Deutsche Group chief economist for Australia Phil O’Donaghoe said the shock increase would likely push the Reserve Bank of Australia to hike rates in August by 25 bps to 4.6 per cent.

The ASX200 tumbled on Wednesday following the 11.30am inflation print. Picture: NCA NewsWire / Christian Gilles
The ASX200 tumbled on Wednesday following the 11.30am inflation print. Picture: NCA NewsWire / Christian Gilles

“Underlying inflation is intolerably high in Australia,” he said.

“In fact, Australia is the only G10 country where underlying inflation has increased since December.

“The scale of that acceleration is material. Trimmed mean inflation, the RBA’s preferred measure of inflation, stood at 4.4 per cent year-on-year in May up 0.4 points since December.

“In contrast, every other G10 country has seen a deceleration in underlying inflation since December and the average decline is 0.9 points.

“Unless there is a stunning reversal in underlying inflation pressures in the month of June, we think that another material beat on the RBA’s near-term forecasts for trimmed mean inflation is looking very likely.

“That should prompt a rate hike.”

IG analyst Tony Sycamore said the rates market had now priced in the chance of an August hike at 35 per cent chance.

The big banks all fell of the news, led by Commonwealth Bank, which retreated 1.34 per cent from Tuesday’s high to close at $126.90.

Reserve Bank Governor Michele Bullock
Reserve Bank Governor Michele Bullock speaks at a press conference. Wednesday’s CPI figures increases the chance of an RBA rate hike. Picture: NewsWire / Nikki Short

NAB fell 1.09 per cent to $36.29, Westpac slipped 0.58 per cent to $27.31 and ANZ shed 1.28 per cent to $28.45.

In corporate news, media giant Seven West announced a new operating model that will demarcate the company into three divisions: television, digital and Western Australia.

The company’s share price traded flat to close at 18c.

Embattled gaming company Star Entertainment announced Steve McCann as its new CEO.

Mr McCann is the former CEO of Crown Resorts and he pledged to help Star address its “many complex issues and challenges”.

Shares in Star ended flat at 46c.

The top gainer on the ASX200 was medical device company Polynovo Limited, which leapt 6.6 per cent per cent to close at $2.42.

The largest laggard was KFC operator Collins Food, which slumped 8.9 per cent to $9.11.

The Aussie dollar lifted 0.59 per cent against the Greenback to be buying US66.8c at the closing bell.