Politics – Page 26 – Digital Finance Analytics (DFA) Blog

Disappointing US Inflation Data Will Keep The Fed Hawkish…

The last mile of the journey in getting inflation back into its box, is the hardest and most intractable. So while US inflation is much lower than it was the latest release yesterday, ahead of the FED rate decision today shows it’s not declining quickly and remains above the Federal Reserve’s targets.

In summary, core inflation matched market expectations in November, increasing at a marginally faster rate of 0.3%. In annualised trend terms, core inflation is running at 3¼%, with rapid core goods disinflation of 3¾% broadly offsetting faster core services inflation of 5½%. But core services excluding housing inflation has picked up to 6% in annualised trend terms, while the trimmed mean CPI – which gives a sense of the breadth of price rises – has picked back up to 3¾%.

The initial spike in 2021 was driven by goods prices, which had been stable for years. That was mainly thanks to the pandemic’s effect on supply chains. That shock is over. At this point, inflation is almost entirely about core services, which include shelter.

The FOMC won’t change rates this week, but it does get to revise the “dot plot” which shows its projected course of interest rates ahead. That would be a way to assure the market that rates are coming down swiftly, but for now the Fed could be reluctant to do anything that encourages more speculation.

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Paying Tax And Interest Through The Nose In A Deep Per Capita Recession!

The Australian Bureau of Statistics (ABS) has released the June quarter National Accounts, which were an unmitigated disaster and confirmed that Australia is in a deep per capita recession.

The economy as measured by real GDP grew by only 0.2% in the September quarter, driven by increased government consumption and capital investment over the quarter and badly missing economists’ expectations of a 0.4% print: Growth over the year was 2.1%, less than population growth over the same period. While the population surge earlier in the year has supported demand overall, it is now rolling over and will not provide the same support in 2024. Or as Luci Ellis, at Westpac put it The Australian economy limped along in the September quarter.

Real per capita GDP has fallen for three of the past five quarters, with the March quarter revised up to flat. Accordingly, GDP per capita fell 0.3% over the year. Expenditure by households was dead flat over the September quarter and would have fallen by around 0.7% per capita. By contrast, growth in both household consumption and GDP over 2023 slowed due to sustained cost of living pressures and higher interest rates. Household consumption would have fallen even further had the savings rate not fallen to just 1.1%, which is the lowest level since December 2007.

The savings rate is now well below the ‘par’ of 6.5% and notionally implies a draw-down on the ‘additional savings’ accumulated during the pandemic – estimated at around $260bn – running at about $12bn a quarter. In total, about $43bn, or 16.5% of this reserve now looks to have been drawn down. Of course these are not equally spread across households, with many now having no buffers at all.

As Westpac put it. the policy drag on Australian households is clearly biting.

Have Central Banks Done Enough To Grip Inflation?

The Centrals Bankers’ love in in Hong Kong this week was full of contradictions. Indeed, yesterday I featured the RBA’s new Governors comments, centered around her view households were largely coping ok with the 4.25% hike in rates. My reaction was how out of touch with real households she sounded.

The International Monetary Fund this month said the Australian economy was running above capacity, with low unemployment, “sticky” inflation and rising house prices and so forecast a delay in local inflation returning to the 2 per cent to 3 per cent target range until early 2026, slower than most other advanced countries. They also warned federal government that the nation’s infrastructure spending boom has helped push the economy beyond full capacity, requiring the Reserve Bank to increase interest rates further to tame inflation.

But also attending the conference, and a speaker later in the Day was Ex Governor Philip Lowe. He is worried central banks may not have increased interest rates high enough to control inflation and that cost of living help from governments adds to inflation.

The ABS, said: “The 4.9 per cent increase in CPI is down from 5.6 per cent in September and below the peak of 8.4 per cent in December 2022.” But as we will see, the number was lower, thanks partly to Government intervention, which of course means higher spending.

So perhaps the truth is, while inflation was down a little, it may be Central Banks still have more to do, so the game of political chicken on the inflation front is actually far from over. We will see.

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Today’s post is brought to you by Ribbon Property Consultants.

Its Edwin’s Monday Evening Property Rant!

More from Edwin, our property insider, as the trends in Sydney and Melbourne property diverge further. We also look at the latest news and political positioning around property and we update the WeChat news as well.

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The Great Migration Recursion!

The 2023 Intergenerational Report projected that Australia’s population will swell by a whopping 14 million people (+50%) over the next 40 years to 40.5 million people – equivalent to adding a combined Sydney, Melbourne, Brisbane and Adelaide to Australia’s current population.

The number one solution to Australia’s housing (and infrastructure) shortage is to moderate NOM to a level that is below the nation’s ability to supply new homes, infrastructure, and business investment, while also safeguarding the natural environment (including water supplies).

And there is simply no way that we will build enough homes with current extreme NOM levels, as well as high interest rates, elevated materials costs, widespread builder insolvencies, and the like.

The whole notion of bringing in migrants to build homes for migrants is also circular ‘tail wagging the dog’ economics. It is nonsensical to import more migrants to fix a housing shortage caused by too many migrants.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.