In recent months Central Banks have been able to say inflation was falling back towards their targets. But, this had little to do with their rate hiking cycle, and more to the adjustment in supply-side prices, especially energy. The so-called base effects where big lifts in inflation months ago dropped out helped the narrative. But the inflation battle is far from over.
This is because ahead the base effects will reverse. And then we must consider the recent spike in energy prices, plus higher wages flowing through to the services sector of the economy. So overall, I think it is likely that inflationary pressures will re-accelerate in the months ahead. In the US as oil and gasoline continue their upward trend, CPI could potentially rise back above 5.1%-5.5% by year-end. Therefore, inflation levels could remain elevated for a more extended duration than is presently anticipated by financial markets.
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OK, so we know many households are under severe pressure, thanks to falling real incomes, rising inflation and of course interest rate payments. I covered this yesterday in the context of the latest GDP numbers, which on a GDP per capita basis were pretty frightful.
We have seen a record rise in cost-of-living for employee households, driven by soaring mortgage payments and rents, according to the ABS. Employee households’ living expenses increased by 9.6% in the year to June, which is significantly higher than the CPI inflation rate of 6%.
Since they are the ones who are carrying the majority of the mortgage debt, it is obvious that working Australians have taken the brunt of the RBA’s fight on inflation.
But is does beg the question, what levers do households have to try to regain some balance in their finances?
Well, of course there is the obvious one, make sure you have the lower rate on your mortgage and best rates on your savings – as I discussed a couple of days back. Many potentially can save by getting better rates, and we are talking potentially of thousands of dollars!
And make sure you know where you cash flow is going, so you can prioritise effectively, do you really need all those streaming services, and big mobile plans, for example.
The other lever though is just work harder, for more hours. And the recent ABS data showed the hours worked growing fast. But data released today from the ABS showed the number of people working multiple jobs and the percentage of employed people having more than one job reached record highs in the June quarter of 2023.
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UK house prices fell at their sharpest annual pace since 2009 after soaring mortgage rates curtailed how much buyers could afford, Halifax, one of the nation’s biggest mortgage lenders said today.
Halifax said the average value of a home fell 1.9% in August alone to £279,569, the sharpest monthly pace since November. It left prices 4.6% lower than a year ago when the value of UK property peaked.
The Bank of England has raised interest rates 14 times since late 2021 tame inflation, and that’s straining the finances of consumers already hit with higher food and energy bills.
As a result, the market is slowing, with year on year property transactions down 21.7%, mortgage approvals also down 21.7% and new buyer enquiries down 45%.
“We do expect further downward pressure on property prices through to the end of this year and into next, in line with previous forecasts,” Kim Kinnaird, director at Halifax Mortgages.
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Yesterday I went through the latest GDP outturn, and underscored the per-capita recession which is now in play across Australia.
Others see the same, with CBA’s economics team tipping that Australia would plunge deeper into a per capita recession as aggregate GDP growth falls below 1% while population growth remains above 2%:
They said that “Real GDP per capita declined by 0.3% in the quarter, following the same decline in Q1 23. Real GDP per capita is 0.6% below its peak in Q4 22 and 0.3% lower over the year”.
“Population growth has been much stronger than anticipated by policymakers. Working-age population has increased by 2.8%/yrin July. The increase in population is supporting overall GDP, but the economy is contracting on a per capita basis”.
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Superficially, Australia’s economy maintained its momentum in the three months through June, with the expansion underpinned by exports and sectors less impacted by the Reserve Bank’s 12 interest-rate increases.
That said, key themes from the accounts are: ongoing weakness in consumer spending; slowing growth in employee compensation; rapid deterioration in productivity; offset by boosts from business investment and services exports, but which is a fudge.
The ABS reported that Gross domestic product advanced 0.4%, the same pace as the prior quarter and in line with economists’ estimates. From a year earlier, the economy grew 2.1% from an upwardly revised 2.4%.
However, while the economy grew by 0.4% in aggregate terms, it shrank by 0.3% for the second consecutive quarter in per capita terms, a more realistic measure, than gross GDP which is inflated by high migration and hence population growth. Per capita GDP also declined by 0.3% over the 2022-23 financial year.
It is clear that the main driver of Australia’s GDP growth is the Albanese Government’s unprecedented immigration program, which delivered a record net 502,000 visa holders (excluding tourists) into Australia in the year to July, with student visas accounting for 297,000 of these arrivals.
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I caught up with Peter Marshall from Mozo to talk about the current trajectory of interest rates for mortgages, savings and cards, following the RBA’s decision to hold the cash rate at 4.1% on Tuesday.
The point is, more than ever before perhaps, its important to shop around for the best available rates, as banks are seeking to fatten their margins in the current difficult market.
Rate comparison portals such a Mozo https://mozo.com.au/ can help to find the best deals.
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This is an edit of my live discussion with Damien Klassen, Head of Investing at Walk The World Funds And Nucleus Wealth. September is often a bad month in the markets. How have events in China been impacting the current dynamics, will interest rates and bond rates go higher still, and has AI still further to go in terms of market growth, or distortions? And how does all this impact investment strategy?
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My latest chat with our property insider Edwin Almeida, as we look at the latest in the rental crisis, more demand from certain groups for property which can be subdivided, and more horror pictures of property gone wrong.
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New Zealand’s house price slump has given first-time homebuyers a welcomed leg up in their quest to purchase a property, but it may be a short-lived opportunity.
For a certain segment of the nation’s would-be homeowners — those armed with sizable deposits and solid incomes — 2023 has been a heartening year, with first-time buyers grabbing a record 26% share of the market in the third quarter, according to CoreLogic New Zealand. While an 18% fall in house prices between November 2021 and May this year made homeownership more obtainable, also working in their favor has been strong wage growth, a possible peak in interest rates, an easing of lending rules and government policy changes.
“This is a window of opportunity,” said independent New Zealand economist Tony Alexander. “This is good as it gets.” But Alexander has further words of caution for those looking to get on the housing ladder: The clock is ticking.
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Central Bankers have been at pains to say they are being data dependant in setting monetary policy. But the problem now is markets are chasing every new scrap of news, and then trying to react, ahead of the Central Bankers, creating an uncertainty monster.
So an awful August gives way to an uncertain September, investors hope data this month will confirm that the seemingly relentless rise in interest rates will end soon, meaning respite for both stocks and bonds.
But there are a few snags. This September is chock-full of risk events, including central bank meetings, a G20 summit and make-or-break data, not to mention that it tends to be the worst month of the year for the mighty S&P 500.
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