This is an edited version of a live discussion as I explore the latest trends in population, home prices and productivity with Leith van Onselen, Chief Economist at the MB Fund and MB Super. He is also Chief Economist and co-founder of MacroBusiness. Leith writes as the Unconventional Economist. Leith has previously worked as an economist at the Australian Victorian Treasury and Goldman Sachs.
Original live stream and chat here: https://youtube.com/live/eclazIUDbz8
Go to the Walk The World Universe at https://walktheworld.com.au/
The ABS released the quarterly inflation read today, together with the monthly update. Overall the Consumer Price Index (CPI) rose 0.6 per cent in the December 2023 quarter, lower than the 1.2 per cent rise in the September 2023 quarter and 4.1 per cent annually, This was the smallest quarterly rise since the March 2021 quarter. The RBA’s preferred measure of underlying inflation (the trimmed mean), which strips out irregular or temporary price changes, rose 4.2 per cent annually, down from 5.1 per cent in the September quarter.
Remember of course this still means that prices continued to rise for most goods and services, though annual CPI inflation has fallen from a peak of 7.8 per cent in December 2022, to 4.1 per cent in December 2023.
Markets reacted by pushing the ASX 200 to a new all-time high, closing at 7,680.70 on Wednesday, 50 points higher that its previous peak set in August 2021 on the assumption that this CPI result will mean the RBA holds interest rates when they meet next Tuesday. Falls however are not expected until later in the year, or into 2025, depending on which economists you chose to listen to.
Money market traders are now fully pricing the first 0.25 of a percentage point cut to the 4.35 per cent cash rate in August, from September before the inflation data. A second rate cut is fully factored in by December.
Westpac chief economist and former RBA assistant governor Luci Ellis said the RBA was “unlikely to raise rates further this cycle”.
there is certainly some more positive news in these numbers, though of course real felt inflation is way off the official reported average numbers for some households.
But that said, domestic-generated inflation remained firm due to strong price rises for new dwellings (5.1 per cent), rents (7.3 per cent after extra rent assistance), insurance (16.2 per cent) and electricity (6.9 per cent after bill subsidies).
The inflation for so-called non-tradable goods and services, which are mostly influenced by domestic factors, rose 5.4 per cent, down from 6.2 per cent.
ANZ economist Catherine Birch said non-tradables inflation was “still very strong” and could make the RBA retain its “hawkish” tone on monetary policy at its meeting next week.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
More from our Property Insider, Edwin Almeida as we look at the low listings, and rentals, and the reasons why markets are not behaving as some (who should know better) said they would.
Edwin referred to this post: https://www.tiktok.com/@shallowchal/video/7326805682114645255
We also look at trends in Western Australia, as well as our normal East Coast analysis.
Things, as they say are getting interesting…
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.
The Australian’s Judith Sloan recently debunked KPMG chief economist Brendan Rynne’s spurious claim that a “short-sighted”, “kneejerk” cut to immigration would damage productivity and the economy.
So what are the latest figures telling us?
In the Financial Year 2022-23 we saw a record high net overseas migration of 518,000, while the federal government’s latest forecast is for a fall to around 375,000 which by the way would still be the second-highest annual read on record.
Such high volumes are driven in part by the student influx post pandemic.
Ahead, CBA expects a slowdown rate of population growth. “Using net overseas arrivals data for certain visa types till December 2023 suggest net overseas migration for 2023 was ~370k, roughly in line with government estimates for FY24″…
Now while the total number might be down, because the student element is the one moderating and most sensitive to rental demand, it might just help to cool rental growth a little – it is still way too high… many of those coming into the country still are cashed up and ready to buy property. So net, net given the limited supply of new property, due to falling building approvals, this will probably not help to ease undersupply.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
On Wednesday Statistics New Zealand released consumer price index (CPI) data for the December quarter. The data showed that New Zealand inflation slowed in the final three months of 2023, despite indicators of domestic price pressures remained stubbornly strong, which came in below the Reserve Bank’s expectations. As a result, it appears that policymakers are likely to hold until there’s a clearer picture of the economy.
“While this is the smallest annual rise in the CPI in over two years, it remains above the Reserve Bank of New Zealand’s target range of 1 to 3 percent,” consumers prices senior manager Nicola Growden said.
The OCR currently stands at 5.5%. While Investors are betting the RBNZ will start cutting the Official Cash Rate in the second quarter and will lower the benchmark to 4.75% by year’s end. But as I discussed recently, policymakers remained concerned about sticky core prices and most economists expect the RBNZ will delay a rate cut until the second half of 2024. In November, the central bank projected that inflation would drop below 3% in the third quarter of this year.
“Inflation continues to move in the right direction,” said Jarrod Kerr, chief economist at Kiwibank in Auckland. “The current state of play and the outlook should be sufficient to see the RBNZ pivot away from rate hikes. Rate cuts are not too far away.”
However, others remain more sanguine. “The divergence between the domestic and imported components of inflation helps to illustrate the big concerns that the RBNZ is trying to balance,”said Satish Ranchhod, senior economist at Westpac Banking Corp.
“Inflation is coming down. That will be important for stabilizing inflation expectations and means that the RBNZ will feel more comfortable keeping the OCR on hold for now.”
Westpac believes the CPI print will keep the Reserve Bank of New Zealand on hold through 2024 because inflation is “still uncomfortably high”.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Kiwi Inflation Eases, But Slowly, So Rates Will Remain Higher For Longer!
Another dose of charts and common sense from Tarric Brooker, as we look at the latest data and explore the implications for Australians on Australia Day. Houses and Holes, mate, Houses and Holes!
See the charts here: https://avidcom.substack.com/p/dfa-chart-pack-26th-january-2024
And Tarric’s article on the Houthi Strikes, The Closure Of The Gate Of Grief And The Sea Of Economic Consequences https://avidcom.substack.com/p/houthi-strikes-the-closure-of-the
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Its Our Australia Day Special: With Tarric Brooker!
Sometimes, we see clearer looking in on another economy, and the dynamics in Canada are mirroring Australia, and New Zealand, so when the Bank of Canada Governor Tiff Macklem discussed the latest Monetary Policy and decision, it was relevant more broadly.
They held target for the overnight rate at 5% and warned that while rates might have to go higher if inflation reaccelerated, their base case was a pause, for some time, waiting the for effects of higher rates to pull inflation into target – a target not expected to be met for some long time. The Bank is also continuing its policy of quantitative tightening.
Global economic growth continues to slow, with inflation easing gradually across most economies. While growth in the United States has been stronger than expected, it is anticipated to slow in 2024, with weakening consumer spending and business investment. In the euro area, the economy looks to be in a mild contraction. In China, low consumer confidence and policy uncertainty will likely restrain activity. Meanwhile, oil prices are about $10 per barrel lower than was assumed in the October Monetary Policy Report (MPR). Financial conditions have eased, largely reversing the tightening that occurred last autumn.
The Bank now forecasts global GDP growth of 2½% in 2024 and 2¾% in 2025, following 2023’s 3% pace. With softer growth this year, inflation rates in most advanced economies are expected to come down slowly, reaching central bank targets in 2025.
They called out risks to this forecast:
Digital Finance Analytics (DFA) Blog
Rate Pause Perhaps, But Not A Cut Anytime Soon In Canada!
The Australian Government has directed the ACCC to conduct an inquiry into Australia’s supermarket sector, including the pricing practices of the supermarkets and the relationship between wholesale, including farmgate, and retail prices.
The year-long inquiry will also examine competition in the supermarket sector and how it has changed since the ACCC’s last inquiry in 2008.
“We know grocery prices have become a major concern for the millions of Australians experiencing cost of living pressures,” ACCC Chair Gina Cass-Gottlieb said.
“When it comes to fresh produce, we understand that many farmers are concerned about weak correlation between the price they receive for their produce and the price consumers pay at the checkout.”
“We will use our full range of legal powers to conduct a detailed examination of the supermarket sector, and where we identify problems or opportunities for improvement, we will carefully consider what recommendations we can make to Government,” Ms Cass-Gottlieb said.
Like London buses, you wait a long time, then they come in bunches – this is the fourth inquiry currently underway across the sector. As well as price gouging, shrinkflation, supplier management and competition need to be addressed.
In a year, we will know if it was worth the wait!
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Yet More Probes Into The Great Supermarket Rip-off!
Lots of noise this week about the revamped stage 3 tax cuts. It’s worth remembering first that 2 in five Australians pay no tax because they do not earn enough, so this is change is certainly not going to impact every household.
Anthony Albanese had repeatedly committed to delivering stage 3 as legislated by the Coalition – but told the National Press Club on Thursday, “When economic circumstances change, the right thing to do is change your economic policy. That’s what we are doing.”
At one level of course this is another broken promise – just like the superannuation tax cap which came in last year. Presumable the calculus is more people will benefit than not, and it’s a long time to the next election, so people will forget. We will see.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
The latest forward view of Australian Wholesale Energy Prices out to 2027 show prices for East Coast consumption will remain at nose-bleed levels out as far as 2027, according to data from the Australian Energy market.
There is a reason for this, in that marginal wholesale power prices are remarkably set based on the cost of gas, via LNG in the international markets. This will pressure get worse as coal fired generation is retired across Australia.
Governments of various flavours have messed up here from a policy perspective, in that a small number of international operators are the Australian gas cartel of Santos, Woodside, Origin, Shell, Exxon and friends.
The Governments latest solution to the high price of power, was to set a policy price cap of $12 a gigajoule in the domestic market that is unless cartel members meet certain exemptions such as investing in new gas projects.
That $12 cap was set after receiving warnings from Treasury that energy prices were set to soar by about 50 per cent over 2023 and the first half of 2024. As a result of the intervention, power prices were reduced, by an estimated $230 dollars a year, which is mere chicken feed, given the massive run up in price. Estimates are the average household bill will rise by $700 by mid-2024 compared to June 2022, based on Treasury figures. And In practice the $12 cap is behaving as a floor, as the cartel ships more gas offshore.
All of this means that China who can often on-sells the gas to Europe at a healthy profit, is still seeing cheaper gas prices than in Australia!
The solution of course is for the Government to increase the local reservation and reduce the price cap (floor). But that would bring them up against the political and economic powers of the gas cartel.
So the bottom line is that Australian East Coast households are being taken to the cleaners, one reason why costs of living are so high, while local manufacturers are being priced out, and reducing the capacity for local production.
Which begs the question is this simple stupidity, or something much worse. Who really are pulling the economic strings in the country? Game of Mates anyone?
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Government Policy Makes Households Pay through The Nose For Energy!
