Welcome to this month’s newsletter and hopefully the end to all the lockdowns. It is so enjoyable to be out and about, mask free outside, and starting to see a light at the end of the COVID-19 tunnel.
It is going to be interesting to see how we commence our lives “living with Covid”. What we can see from overseas where countries have been out of lockdown for some time is that people are spending money in a big way. Eating out, holidays, retail therapy, and generally just getting out and about.
As we start our adventures outside, spending our cash to make up for time pent up inside, this will start to have an impact on the economy, most noticeably on prices of goods and services which in turn has seen an increase in the inflation rate.
The Reserve Bank of Australia (RBA) has stated that they do not intend to increase home loan interest rates until 2024, when they expect a significant increase in inflation will need the lever of an increase in interest rates to ease inflationary pressure.
However, what we are seeing already is the banks not showing the same restraint as the RBA as they increase their long term fixed interest rates. The banks seem to believe rates could increase in 2022. This may see a slowing down of housing prices as the cheap money starts to dry up.
We are already seeing a rise in prices, most notably cost of groceries and petrol. Interestingly the rise in petrol has been traced back to a reduced supply worldwide due to COVID, but now the US are out of lockdown, they have filled their cars up and hit the road.
A rise in wages is another key factor the RBA wants to see before raising interest rates, and this appears to be happening as well, with such a shortage of staff in areas such as hospitality, retail, as well as professional industries. Another observation from those out of lockdown overseas countries is a large increase in the number of people resigning from their jobs. As they come back into the office, they are realising their lives have changed and they now want a more rewarding occupation. This churn in the job market usually leads to increase in wages as companies compete for staff.
Statistics from the ABS for the month of September show that the value of new home loans has dropped for new and existing homes. Also, there were less first home buyers purchasing homes, as well as a reduction in the amount of home owners refinancing their mortgage. This of course is all coming off a very high base, but may be indications of the housing market beginning to ease. Maybe our focus is turning to holidays and travel, and once again enjoying our freedom.
The interesting times we live in seem like they will last a bit longer yet.
At its meeting today, the Board decided to maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances at zero per cent
The Australian economy is recovering after the interruption caused by the Delta outbreak. As vaccination rates increase even further and restrictions are eased, the economy is expected to bounce back relatively quickly. The central forecast is for GDP growth of 3 per cent over 2021 and 5½ per cent and 2½ per cent over the following two years. One important source of uncertainty continues to be the possibility of a further setback on the health front.
