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RBA Oct 2023 | To Stick or Slip? Inflation Trend, Property Supply, and an Overlooked Lesson

The Property Couch

Mon Oct 02 2023



Inflation:

  • Mixed economic signals on inflation
  • Sticky inflation challenging compared to desired downward trajectory
  • Deeper dive into sticky inflation and its implications

Property Supply:

  • Focus on supply within each market
  • Advertised supply levels in Adelaide, Brisbane, and Perth around 40% below previous five-year average
  • Melbourne and Sydney seeing significant increase in new listings

Behavioral Economic Lesson:

  • Instant gratification often trumps delayed gratification in mass behavior
  • Government stimulus leads to increased spending rather than saving, which can be inflationary
  • Need for individuals to practice good money management and hold onto appreciating assets during periods of higher costs

RBA Cash Rate Announcement:

  • Cash rate kept on hold at 4.1%
  • Potential further rate increase before year-end due to sticky inflation and high energy costs

National Accounts Data:

  • GDP grew by 0.4% in June quarter with productivity challenges
  • Labor costs continue to grow while productivity weakens, adding to inflation pressures

Consumer Sentiment:

  • Consumer sentiment index fell 1.6% in September reflecting entrenched weakness despite RBA rate pause
  • Concerns about impact of inflation on household income and wealth contributing to pessimism

Retail Sales:

  • Retail sales increased by 0.2% in August, but aggregate growth remained soft with weakest annual growth rate in two years
  • Household spending under pressure from elevated inflation and higher interest rates

Business Conditions:

  • Business conditions rose three index points to +13 in August indicating resilient conditions despite consumer confidence weakness
  • Cost pressures moderated but capacity utilization remains high, posing inflation risks unless demand slows down

Property Market:

  • CoreLogic National Home Value Index recorded 0.8% growth in September with eighth consecutive month of growth nationally
  • Adelaide, Brisbane, and Perth have supply constraints with advertised levels below previous five-year average
  • Melbourne and Sydney saw significant increase in new listings in past three months

Overall Economic Outlook:

  • Need for fiscal policy to complement monetary policy in managing inflation and economic growth
  • Importance of households practicing prudent money management during periods of higher costs and potential interest rate increases