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.
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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Today’s post is brought to you by Ribbon Property Consultants.
The monthly CPI indicator rose 4.9% in the twelve months to July compared with 5.4% last month. The CPI excluding volatile items was at 5.8% compared with 6.1% last month and the annual trimmed mean was 5.6% compared with 6% last month.
So Annual price rises continue to ease from the peak of 8.4 per cent in December 2022. The most significant contributors to the July annual increase were Housing (+7.3 per cent) and Food and non-alcoholic beverages (+5.6 per cent). Reducing the July increase were price falls for Automotive fuel (-7.6 per cent) and Fruit and vegetables (-5.4 per cent).
But there are a number of data changes which have messed with the data, the numberwangers are at it again!
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Today’s post is brought to you by Ribbon Property Consultants.
…Ain’t no fun and games! This is an edited version of our recent live show, which was a dose of reality from Investment Manager Tony Locantro, from Alto Capital. Is the game up, and what are the consequences for investors, home owners and aspiring first time buyers?
Another deep dive into the data with Journalist Tarric Brooker as we explore the recent events in China, the housing story (and political announceables), the mortgage cliff (or not) and lots more.
Slides are available here: https://avidcom.substack.com/p/dfa-chart-pack-18th-august-2023
Tarric’s article which we mention is here: https://avidcom.substack.com/p/aussie-fixed-rate-mortgage-cliff
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Digital Finance Analytics (DFA) Blog
Well, We’ll Cover As Much As We Can! - With Tarric Brooker...
I am here running a project to measure financial stress in the UK, using the same methods as in Australia for the past two decades, and down the track I will be able to report and compare data across the country.
And this is timely, given that Gross domestic output is unlikely to return to its pre-pandemic level before 2024, according to just published forecasts from the London-based National Institute of Economic and Social Research. And worse, the UK is headed for five years of lost economic growth as the government fails in its goal to “level-up” the country’s regions and reduce inequality, an influential think tank says.
While output across the country will be lackluster, NIESR said, some regions will feel a sharper pinch. In London, it expects real wages will grow by up to 7% in the five years from the end of 2019 — but in the West Midlands, home to Britain’s third-largest city Birmingham, NIESR is projecting a 5% drop in inflation-adjusted pay.
The broader economy’s tepid pace of growth is one of the factors feeding a gap between the rich and poor, NIESR said. It predicted little real wage growth for low-income households, which also will have to shoulder higher levels of debt as food, energy and housing costs remain historically high.
By 2024, the UK’s poorest households could be facing a shortfall in their disposable incomes of 17% relative to 2019, compared to 5% for the richest households, the think-tank predicted.
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In a choppy trading session indexes rose in the morning, then wavered before turning negative so Wall Street closed lower on Friday after a report of slowing U.S. labor market growth, and all three major indexes posted weekly losses as investors braced for more possible downside surprises a day after disappointing earnings from Apple.
A mixed July jobs report showing fewer than expected job gains in July, but an uptick in wages that threatens a re-acceleration in inflation and so more FED action. Still the markets are holding the faith on a soft landing for the economy as the FED tightens. It still though might feel like a hard bump.
The weekly percentage declines for the S&P and Nasdaq were the biggest since March, with some investors taking profits after five months of gains due to economic data, disappointing earnings and rising Treasury yields.
The Labor Department reported that U.S. employers added 187,000 jobs in July. Data for June additions was revised lower to 185,000 jobs, from 209,000 reported previously. Average hourly earnings rose 0.4% in July, unchanged from the previous month, exceeding expectations, taking the year-on-year increase in wages to 4.4%.
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Digital Finance Analytics (DFA) Blog
Upcoming: A Soft Hard Landing Or A Hard Soft Landing? [Podcast]
