Welcome to this month’s Dominion Finance Newsletter. After so much discussion regarding interest rate cuts this year by the experts, they seem to have done a complete turnabout and are now predicting possible rate rises instead, in a way to curb our sticky inflation. Reducing inflation is a bit like losing weight, the last one or two kilos is the most stubborn to get rid of.
As we all keep getting reminded by the government, we are all receiving tax cuts on 1 July. While these cuts are poised to stimulate spending and economic growth, it is crucial to understand their potential implications, particularly concerning inflation and the housing market.
The government’s decision to implement tax reductions is aimed at injecting cash into the market, fostering consumer confidence, and driving economic activity. This could translate into increased demand for rental properties and potentially higher rental incomes as disposable incomes rise. However, it is essential to remember with higher rents, and more disposable income due to the tax relief, higher inflation rates will be with us for a longer period.
Australia’s housing market presents both opportunities and challenges for home buyers and property investors. While tax cuts may fuel demand for residential properties, exacerbating affordability issues and driving up prices, they also underscore the persistent shortage of housing supply, particularly in major cities like Sydney and Melbourne. As homeowners and investors, it’s essential to consider the long-term implications of these dynamics on property values and rental yields.
Furthermore, Australia’s robust immigration trends play a significant role in shaping the housing market landscape. The influx of migrants contributes to population growth and increases demand for housing, particularly in urban centres. It is important to understand the relationship between immigration patterns and housing demand as it is essential for identifying lucrative investment opportunities and mitigating risks. The government has already stated that the migration levels next financial year will be significantly reduced to take pressure off the housing market.
Tax cuts present promising prospects for Australians and is like a reduction in the cash rate, it will put more money in our pockets each month, However it will make it more difficult for the RBA and the government to rein in inflation. Next weeks budget was intended to be a big spending, economy boosting, election winning budget, however it appears the government will have to be more conservative in their approach so as not to fuel further inflation.
It looks like we will keep our current interest rates for a bit longer. Until next time, enjoy the change of season.
At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.
Recent information indicates that inflation continues to moderate, but is declining more slowly than expected. The CPI grew by 3.6 per cent over the year to the March quarter, down from 4.1 per cent over the year to December. Underlying inflation was higher than headline inflation and declined by less. This was due in large part to services inflation, which remains high and is moderating only gradually.
The information provided in this newsletter is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this newsletter, you should consider its appropriateness in relation to your personal situation.
