Welcome to the second RBA Rate Release of 2024!
Join Evan Lucas and Ben Kingsley as they reunite to decipher the latest economic trends and data in this month’s episode, including:
📈 Sticky Inflation in the US: Delve into inflation and its tenacity within the US economy.
📊 Deep Dive into December GDP Quarter Numbers: Take a close look at the recently released GDP quarter numbers for the Australian market.
🏦 Bank of Japan's Interest Rate Decision: Explore the deliberations of the Bank of Japan regarding a potential rate “hike” after over 15 years, and its potential ripple effects on the global economic landscape.
🇦🇺 Australian Economic Outlook and Predictions: Find out Ben's and Evan's perspectives on the prevailing economic conditions in Australia and the conundrum faced by the Reserve Bank of Australia (RBA).
💡 Monetary Policy and its Limitations: Explore the effectiveness of monetary policy as the sole tool for managing inflation, considering interest rate movements only impacts one-third of the Australian population.
LISTEN TO THE FIRST 20 EPISODES HERE >>
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FREE MASTERCLASS:
- How to Build a Property Portfolio and Retire on $2,000 a week >>
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FIND US HERE:
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Welcome to the second RBA Rate Release of 2024!
Join Evan Lucas and Ben Kingsley as they reunite to decipher the latest economic trends and data in this month’s episode, including:
📈 Sticky Inflation in the US: Delve into inflation and its tenacity within the US economy.
📊 Deep Dive into December GDP Quarter Numbers: Take a close look at the recently released GDP quarter numbers for the Australian market.
🏦 Bank of Japan's Interest Rate Decision: Explore the deliberations of the Bank of Japan regarding a potential rate “hike” after over 15 years, and its potential ripple effects on the global economic landscape.
🇦🇺 Australian Economic Outlook and Predictions: Find out Ben's and Evan's perspectives on the prevailing economic conditions in Australia and the conundrum faced by the Reserve Bank of Australia (RBA).
💡 Monetary Policy and its Limitations: Explore the effectiveness of monetary policy as the sole tool for managing inflation, considering interest rate movements only impacts one-third of the Australian population.
LISTEN TO THE FIRST 20 EPISODES HERE >>
MOORR MONEY MANAGEMENT APP:
👉 Apple: https://apple.co/3ioICGW
👉 Google Play: https://bit.ly/3OT86bW
👉 Web platform: https://www.moorr.com.au/
FREE MASTERCLASS:
- How to Build a Property Portfolio and Retire on $2,000 a week >>
FREE BEST-SELLING BOOKS:
- The Armchair Guide to Property Investing
- Make Money Simple Again
FIND US HERE:
- Website
- Instagram
- Facebook
- Youtube
Hello and welcome to our second Economic and RBA update for 2024, where Evan and I get to talk about all the social science that is, economics, looking at the latest data and trying to make sense of some of what it all means. Thanks for joining us, evan.
Speaker 2:Ben, thank you again. Yes, I think you did right with regards to the word social, because that is clearly what's coming out in the data which we're going to go through all today. It's quite an exciting period too, because we're leading into a period now with the RBA. You also get to join the rest of the central bank world of only having eight meetings, and there's four of them in this month, and then we get to look forward to what goes on in May and June as well.
Speaker 2:So we'll go through all of that data today.
Speaker 1:Yes. So let's rip through some of the things that we want to talk about and focus in. We want to talk about sticky inflation in the US. We're going to have a look at the December GDP quarter numbers released for the Australian market. We'll take a deep dive into those. We're going to then focus in on the RBA's trying to walk this narrow path. So we're going to take and talk more about that. And then, on the property front, 2024 has actually started better than we expected. The market is moving quite strongly. So we are going to take a look at the different quartiles in terms of seeing which market is performing best in terms of those price quartiles.
Speaker 1:So let's rip into the show. We're actually starting with the US data and we'll start with the inflation story there. This is very much a story about the first remnants of sticky inflation. So we saw annual inflation rate in the US unexpectedly edge up to a reading of 3.2% in February, compared to 3.1% in January and above the market forecast of 3.1%. Energy costs dropped much less than expected negative 1.9% versus negative 4.6% in January. Meanwhile, prices increased at a softer pace for food 2.2 versus 2.6. Shelters sorry 5.7 versus 6%. New vehicles 0.4% versus 0.7%. Medical care 2.9% versus 3%, and costs were steady for apparel, which was basically a reading of 0% versus 0.1% of 1%. Costs declined in used cars and trucks negative 1.8%, so that's in disinflationary territory versus negative 3.5% as well and prices continue to rise sharply.
Speaker 1:For transportation, this is the big one in terms of 9.9% versus 9.5%. In monthly inflationary terms, we saw it rise by 0.4% from a reading of 0.3% of 1%, and that was driven by shelter and gasoline contributing to over 60% of those increases. So naturally that's flowing into that. Transportation read there as well. In some good news. Core inflation eased to a reading of 3.8% from 3.9%. However, compared to forecast of a result of 3.7%, these weren't great numbers, were they Evan?
Speaker 2:No, and you've highlighted that last bit. So I mean the chart that you've got on screen. If you're watching this on the YouTube channel, where you can see this is what we refer to, as you said at the start sticky inflation you can see that basically, since June last year, the month-on-month figures for the year-on-year read are now sort of bubbling between 3.1 and 3.8%, depending on which one you want to look at, and the chart that really catches my attention is this one, and so those of you listening, what this shows is just how hard it is to really impact service inflation, and that's the real drag here in terms of keeping inflation high, about this stickiness, because services involve people you and me working.
Speaker 2:It involves the overall expenditure of people as well, the wants for things like, as Ben highlighted before, travel and transportation. They all fall into services and they are showing signs that they are still well and truly above where they need to be, because, unlike here in Australia, where we want a band of 2% to 3%, the state needs it at 2%. So we're still talking to almost double, almost double where they need it to be. And that's again this concern that's starting to filter in that, yes, inflation is moderating. Yes, goods inflation, you can see, is back to basically next to nothing in terms of price increases.
Speaker 2:But services and the US is a service economy like we are here in Australia, is dragging its feet, and that is why inflation, although it's moderating, is now getting caught at this really sort of in-between period where, unfortunately, prices are still growing, not at the level they were back at the end of the COVID lockdowns, but a rate that is still probably too high to start talking about rate cutting in the near term.
Speaker 1:Evan, that's a really good point and it's a nice segue into where interest rates are going. So we know currently that the benchmark interest rate in the US currently sits at 5.5%. Now we don't get this is the big story right. We get the Fed decision this Thursday, so we're going to learn a lot more about that. But we did get a little bit of an insight into Jerome Powell's thinking and the Fed Board's thinking about what's going to happen. They do a semi-annual monetary policy report to Congress and during that particular presentation he reinforced that the economic outlook looks uncertain and ongoing progress towards that 2% inflation objective is not assured and there are risks of reducing policy restraint either too soon or too late. So this is that sort of narrow path that's becoming a bit of a theme both here in Australia and also overseas, so effectively meaning that they will continue to make live calls at each meeting based on the data. So obviously you know, with it just around the corner, evan, what's your read in terms of what you think the Fed will do with rates.
Speaker 2:Yeah. So I want to go through a few things with rates and to point out first and foremost, we need to understand that the current rate hiking cycle in the States is the third highest in the last 45 years. So before that, the two strongest were happening in the 70s in terms of the speed and veracity at which they went. They were during stagflation, we had the oil crisis, we had a couple of recessions and all these other bits and pieces in between. So that's first and foremost. It needs to be out there. But at the same time, it is very strong. It is clearly restrictive. We have seen it starting to have impacts that you need to want to see, which is inflation.
Speaker 2:But what you're learning to their Ben is even the Fed itself is very confused about what's going to happen this year, next year and 2026. The market, too, is also very quickly and rapidly changing its views on where rates are going and at what speed. On Thursday for us here in Australia, we will get an updated version of what they referred to as the dot plot diagram. They are very good at their communication. Part of the review that we had for the RBA is around communication. Unfortunately, they're not going to do this, but that's OK. What it is is. It actually has every single member on the FOMC board. So that's the Federal Open Market Committee Board, which is their, their overall committee, that decides their interest rate numbers.
Speaker 2:Each member has to tell you what they think rates will be over the next three years, plus what they referred to as the longer run average, and each one of those dots on screen if you're watching this is a member, and what I want to show you from this perspective as well is that the chart that I have at the moment is only for December, because they haven't given us an updated dot plot.
Speaker 2:So we get that for March. So this will change, but I do want to clearly highlight that in December last year, the expectation from the market was that come December this year, the US Federal Reserve's cash rate, as we referred to it, or the federal funds rate, was going to be below 4%. That was the expectation all the way back in December. Now, the closest read we've got, which was last Friday, the expectation for the end of this year is for the cash rate over there to be at about 4.85%. That's a full percentage point difference and that is off exactly what Ben and I have just talked about. Inflation is moderating, but it's sticky. Growth has been better than expected, employment's been slightly better than expected, and that maybe the speed and unwinding of this has been slightly overdone with regards to market expectations, and that's what we want to see now is that if it is slower, it is going to have that unknown effect that Jay Powell is talking about.
Speaker 1:Well summarized and I think it is going to be fascinating to see where that goes. All right, let's take a look at the remaining data that we always try to focus in on for the US and our international markets as well. We'll start with the unemployment rate, and we saw the US unemployment rate rose by 0.2% of 1%, each points to a reading of 3.9% in February. Now this is touching the highest levels since January of 2022 and surpassing market expectations of a 3.7% result. Now, the number of unemployed people increased by 334,000 to 6.5 million. The labor force participation rate was 62.5% for the third consecutive month and the unemployment to population ratio was little changed at 60.1%.
Speaker 1:Looking at consumer confidence and sentiment, we saw the University of Michigan's consumer sentiment for the US was revised lower to a reading of 76.9 in February from a preliminary reading of 79.6 and compared to 79 in January. Now, remember that's pessimistic versus optimistic, right? So a reading above 100 is optimistic as opposed to pessimistic. So the gauge of expectations was also revised down to a reading of 75.2 from 78.4. The current conditions subindex was also revised lower to 79.4 from 81.5. And, most importantly, back to the sticky inflation story. Inflation expectations for the year ahead increased slightly to 3% from 2.9% and the five year outlook for inflation was at 2.9%. But their target range is 2%. So that is obviously consistent with their last couple of months as well. So there is certainly, from the consumer's point of view, their thinking inflation is going to hang around for a little bit longer.
Speaker 1:How is that correlating into retail sales? So our month on month retail sales figures show retail sales in the US were up 0.6 of 1% month over month in February, following an upwardly revised 1.1% fall in January. Now this was below market forecast of a 0.8 of 1% gain. The modest increase, combined with a larger decline in January, suggests the potential slowdown in consumer spending and that consumer in America is so important to their economy. Then we have a look at retail sales. Year on year they increased by 1.5% up until the end of February. Now for context, that compares to the average of 4.8% from 1993 to 2004. Now that is really showing the slowdown of consumer spending that we're currently seeing here right now, and obviously that's on the back of higher interest rates out of the US.
Speaker 1:Turning our attention to the business confidence data and we see the ISM manufacturing PMI in the United States fell to a reading of 47.8 in February from a reading of 49.1 from the previous month. Now that's firmly below market expectations of 49.5 to the point of the 16th points to the 16th consecutive period of declines in manufacturing activity. Now we talked about pessimistic and optimistic. At a reading of 100 in these PMI indexes it's anything above 50 is actually growth. Anything below that is basically seeing manufacturing declines.
Speaker 1:New orders swung to contract to contractory territory of a reading of 49.2 versus 52.5 in January. Prices rose for a second straight month, 52.5 versus 52.9, albeit at an eased pace, amid more expensive transportation equipment, chemical, computer and electrical products. In turn, the fresh downturn in consumer demand is also showing up in a decline in employment levels for this fifth straight month. This is a really good indicator in terms of what's actually happening. When businesses slow down, employment starts to rise. That is unfortunately the hard truth of what slowing the economy does. When you touch with interest rates, what's your takeaway generally around where the US currently sits, evan?
Speaker 2:Yes, the business confidence numbers and the business data is always the thing to really look at because it's so granular and it's forward looking. In terms of what it is, it's really really good, rich data. For people like you and me you highlighted it already what really catches my attention is orders are down but prices up. That is the inflation story. Again, that's the sticky inflation problem. That's inside of it. That we continue to see. Despite all this expectation is that prices are still moving up.
Speaker 2:Then you also highlighted the consumer and the consumer having that inflation psychology which the RVA was introducing to us over 18 months ago, shows that again, even the consumer expects inflation in the States to be higher than what they needed to be, getting to a point when you start hearing that five years out, that's acceptance and that would really send the shutters up a lot of those sitting around that FOS meeting that the consumer is actually accepting inflation at that rate. The final point on that, just to highlight don't forget the difference and why compounding is the problem here. At a 2% inflation rate, five years from now, that one US dollar is about $1.12, $1.13,. 3% it's $1.17 to $1.20. And that's their concern. That is such a difference in terms of the amount of money needed just to stand still because of inflation. That's why they need to get it lower, and that's the big takeout still is that there's still enough in there to show that the US consumer and business is still very much worried that inflation is going to be here for a fair while to come.
Speaker 1:It's a beautiful point that talks about purchasing power. Ultimately, what we're saying there is a higher inflation level reduces purchasing power, which ultimately reduces standard of living. So a great little segue there, so thanks for that. Let's turn our attention now to the Chinese market, world's second biggest economy when you basically strip out the eurozone as one big conglomerate. But let's talk about what's happening in China. We did see inflation data year on year. The consumer price index in China increased 1% in February. Month on month In terms of the Chinese CPI rose 0.7 of 1% year on year until February, which is above market expectations of a rise of 0.3. And it's a big turnaround from the sharpest drop in over 14 years, with a 0.8 reading in January. Now, this is on the back of robust spending during the Lunar New Year holiday period. It's very clear, though, when you're looking at the chart there, that China is very much in a deflationary environment.
Speaker 2:Yeah, and you've highlighted what also has been put into the big caveat that is the February data, that Chinese lunar new year is the seasonality outcast, and so if you took that out, it would have been another month of deflation. Now there is possibly and I know this is a bit cynical a silver lining to this. You know China in deflation they've always been accused of exporting deflation to the world. Well, right now we could do with that. We could actually do with Chinese deflation and actually having that come in.
Speaker 2:If imports are falling like a stone, like China is showing, that actually helps us, because imports the majority of what we get them from is from China and if their prices are falling month on month and realistically, as I said, you strip out what Chinese living year would have been five months in a row and we've had six of the last nine months in that space then that will start to help. It will actually help. Now, it's not good for China I'm not sugarcoating that at all and it's probably not good for the world, but there is that slight silver lining that maybe inflation gets down because the import prices start to fall just purely for the fact that China is having it, so even though demand is still relatively okay, supply is slowing, but if the price falls automatically because of another nation's you know manufacturing costs, then that's probably the only way to look at this, with a good view rather than the negative that it is.
Speaker 1:Or well, let's turn our attention to. Obviously, there's no inflation story there. So what did I mean? Effectively, the Chinese central bank has the opportunity to pull the lever, and that's exactly what they did. We saw the People's Bank of China, the PBOC, cut the reference rate for mortgages, which is the five year loan prime rate, by 25 basis points to 3.95% at its February fixing meeting. Now, this was more than market forecast of reduction of 15 basis points. Now, to put that into context, it's the first cut since June of 2023. But it's the largest rate cut introduced since 2019, as the board has definitely ramped up their efforts to to spur credit demand and reverse the current property slowdown that we're seeing in that particular market. Also, they further supported lending and credit by the central bank, unleashing effectively one trillion Chinese yuan of liquidity into the banking system by trimming the risk rate requirements for commercial banks by 50 basis points and reducing interest rates on relending funds aimed at promoting loans for agriculture and also for small firms. So that just gives you some idea in terms of what's happening there.
Speaker 1:They've also got a challenging, slowing economy. We see that in the unemployment data. We'll take a quick look at that. We saw the unemployment rate in China has increased to 5.2% in January from 5.1% in December. To give you some context about the slowing Chinese economy, the unemployment rate in China averaged 4.74% from 2002 right up until 2024, reaching an all time high. So the worst it's ever been in, under Chinese reported data, is 6.2%, which was in February of 2022, right in the middle of COVID, and the lowest was 3.9% in September of 2002. So having an unemployment rate in the fives when, pretty much for almost two decades, they're easily contributing in unemployment at the four with a four in front of it, that's a real challenge for them.
Speaker 1:Looking at consumer confidence incentive, we saw that consumer confidence in China increased to 88.9 points in January from a reading of 87.6 points in December. Remembering that a reading above 100 is optimistic territory and it shows that the China consumer confidence is still in pessimistic territory, but slightly improving, but it still highlights the challenges facing the Chinese economy at the moment. Then we switch our attention. Now we want to talk about consumer confidence. We don't have anything in retail sales.
Speaker 1:We'll move in to that business confidence story here and we can see that the official NBS manufacturing PMI in China edged down to reading of 49.1% in February from a reading of 49.2% in January, in line with market forecasts.
Speaker 1:This was the fifth straight month of contraction in factory activity amid an impact of long week long sorry lunar new year breaks, and most factories were closed or slow their operations. Here's the point that Evan was making before new orders remained weak amid further declines in foreign sales, so that obviously means they'll drop the prices to sell more goods and export them, and that's beneficiary for us in terms of inflating sorry, importing deflation. As part of that particular story, the delivery time of good lengthens, following a sequence of shortening to at least the past 12 months, and on price, input cost inflation ease to an eight month low, with output prices falling at a softer pace. Finally, sentiment did improve after hitting its lowest in seven months in January of 54.2 versus 54, even Evan. The Chinese economy is battling to regain the momentum that it had prior to the pandemic. Yeah, and not only that.
Speaker 2:I think. The other way to look at it, Ben, is that you can see, the change in policy at Beijing has certainly changed the psyche about how things work.
Speaker 2:And they're now at a point where they're actually concerned. They've probably gone too hard. I mean, part of Xi Jinping's whole concept that he's done over the last six years is to get rid of shadow banking and its reliance. How much sort of capacity there's been in? Probably overspending and over leveraging is also the word. Local government, particularly, has had that problem. And then this is what he happens.
Speaker 2:When the back end is also, you start having this scenario where all of those tightening measures that they've done over the last six years comes to a head. Covid's part of it as you're a right to hide out. But then you look at what is going on overall is it's? You know? You never saw the thyssen numbers in the official PMI numbers below 50, which is obviously the difference between expansion and contraction for this kind of period.
Speaker 2:You never saw a scenario where what they referred to as their risk return ratio, which you pilot before below sort of the lowest it got was about 18%. So this is, you know, those ratios that banks have to hold a certain amount of cash on balance sheet. They always were proud of the fact that they had it basically sitting at 20% and it's now getting towards what we have in the rest of the Western world, which is between 12 and 15%, which shows how much money they're trying to release back into the economy to try and move it. And it's just not. And that's the other thing it's just not doing the same level we're not getting.
Speaker 2:also, the roads to nowhere, the cities of nothing, all those kinds of you know cliche terms. That happens with China. They're not there anymore because, again, the policy is actually to stop it. They don't want it to happen, but it does have a massive impact on psyche. It does have a massive impact on business confidence, and their property market is telling you that. So it's all part of that discussion.
Speaker 1:Yeah, it's a fascinating story and obviously they've got, you know, challenges ahead in terms of how they're going to try and get out of this, also with an aging population challenge as well.
Speaker 2:All right.
Speaker 1:Let's turn our attention now to the Eurozone data, starting with their inflation data. Month on month we saw that the Eurozone consumer prices rose by 0.6 from a month earlier in February, following a 0.4 decline in the previous period was the preliminary estimate In terms of the disinflationary. We're now back into an increase in prices, but we had a nice little month or two there, sort of jumping up and down in terms of disinflation versus price inflation that we saw in that particular story. When we then look at the year on year data and we can see that graph coming up, we can see here that the story is inflation is declined, declining. So we saw a reading of 2.6% year on year in February. Now that's down from 2.8% in the previous month but remains slightly above market expectations of a 2.5% preliminary result. Now this was the lowest rate in three months but still exceeds the European Central Bank's target of 2%. Back down to the data. We saw energy prices record a decline. That's a good story, considering, obviously, that's been one of their biggest challenges when Russia invaded Ukraine. Their energy prices absolutely blue are boomed, so that's a good story. Now the pace of price rises moderated for services food, alcohol and tobacco, non-energy industrial goods, which is further good news. On the inflation fighting front for the EU, in terms of core inflation, we saw it, which excludes the volatile items of food and energy, also cool to a reading of 3.1%, reaching its lowest point since March of 2022. However, it still remained above the forecasted result of 2.9%. So we've still got a bit of a story there in terms of inflation.
Speaker 1:Moving along to the interest rate story we saw there, we saw the European Central Bank kept their rates on hold at their March meeting, keeping the main refinancing operations rate at a 22-year high at 4.5%, and the debt facility rate unchanged at 4%. Policymakers continue to try to balance concerns over looming recession with persistently elevated underlying inflationary pressures. Now the ECB has projected that inflation to average it around 2.3% in 2024. That's compared to a 2.7% in the December projection. So that's come off, which is an improved inflation forecast outlook, and they also revised their growth projections for 2024. Downgrading to only a 0.6%. So basically a very, very sort of half-dead economy over there in Europe, anticipating continuous so-due to economic activity in the near future, and this obviously still is good news when you're thinking about interest rates for later this year. We'll keep moving on before I get your comments, evan.
Speaker 1:Unemployment rate we saw unemployment rate in the eurozone edged lower to 6.4% in January. This is the lowest on record, from 6.5% in December, which matched market forecasts the number of unemployed individuals to climb by 34,000 from the prior month to 11 million and 11 million. That's round that off. In terms of across the euro area economy. Spain continues to report the highest jobless rate, at 11.6%, followed by France at 7.5%, in Italy at 7.2%. In contrast, germany continues to record the lowest unemployment rate at 3.1%.
Speaker 1:Consumer sentiment and confidence we saw consumer confidence indicator in the euro area rose by 0.6 of 1 points from the previous negative 15.5 in February, which was in line with previous preliminary estimates. So it's still deeply, deeply pessimistic across the euro area as a whole. Consumer sentiment went up by 0.4 points to that negative 15.8, thanks to consumers less negative views regarding their household's past financial situation and their contentious intentions, I should say, to make major purchases, and this was partly offset by lower expectations about the general economic situation in the economy. How does that correlate to the retail sales? So we're ripping through the data.
Speaker 1:This is the latest data shows that retail sales in the euro area rose by a mega 0.1 of 1% month on month in January, following a revised 0.6% contraction in December. Sales for food goods tobacco increased by 1%, ending the three-month period of declines, whilst those in automotive fuel advanced by 1.7%, the most since August of 2022. However, sales for non-food products dropped by 0.2 of 1%, following a 0.9% decline in the month before. On a yearly basis, retail sales fell 1%, marking the 16th consecutive month of contraction, right switching across to businesses. So we've got a picture of a pretty, pretty subdued consumer. Let's roll into the business confidence story before we get Evan's feedback. And we saw simply, business confidence in the euro area remained unchanged at negative 0.42 points in February. Evan, what do you read? What's your read on the Eurozone? Where are the signals? Where are they taking us?
Speaker 2:Let me take you back to this chart. Let's have a look. This chart the consumer confidence and the consumer sentiment number is really simply all you need to know. I mean, you cannot have over a year's worth of data of significant contraction of the consumer and that not be a massive issue for GDP, not be a forward-looking indicator in spending, not be a forward-looking indicator for inflation. So Christine.
Speaker 2:Lagarde is on the record as saying they are probably clearing the decks to be the first major G10 central bank to cut rates. The question is when? Yes, as you highlighted that, their expectation is that inflation will still hold above their level of 2% a 2.3% come December. But again, if you look at their forecast, they are based and built around assumptions that rate cuts are coming, and there is even as much as a full 100 basis points in some of their assumptions coming out. So the question is just when? And they will probably be the first to fire the gun.
Speaker 2:It could even be as early as May, and that, I think, is all you need to know. All that data tells you that you cannot have an economy that is that pessimistic, that is basically just somehow, by its fingernails, keeping its head above water, and you highlighted the reason for it is Germany. Overall, the rest of the Eurozone is absolutely choking on itself and there has to be a move forward. So that's all you can say with the Eurozone is that it will be the starter in the interest rate cut environment.
Speaker 1:Well said, I think. Beautiful summary there Now. Normally we would move on to the Australian data here, but we did want to pause and highlight a particular market. Obviously, the Japanese market is important to Australia. It's our second biggest I should say trading partner behind China, and we're seeing the Bank of Japan, BOJ, going to do something quite interesting that they haven't done for a long time ever.
Speaker 2:Yeah. So I just wanted to go to this little tidbit because, yes, we forget Japan and we shouldn't, as you said as the second largest trading partner. Not only that, if you look at Chinese markets, they are completely inverted to their Chinese counterparts. We're talking about the Japanese Nikai is up almost 42% in the last 18 months, so the cheapest that Australians can go there in. Basically, in sort of almost in living memory, it's almost parity between the Japanese yen and the Australian dollar, and it's why more Australians are going to Japan than ever before. But it also means that all of that has helped get their economy going and for the first time, in over 15 years.
Speaker 2:expectations are for this month the Bank of Japan to raise rates. Now the big caveat on that rates are minus 0.1 of 1%. The expectation is that they will turn them to zero, so they're going to raise rates.
Speaker 2:So, instead of the BOJ actually paying banks or whoever it is putting money with them, paying them for that opportunity, sorry, charging them for that opportunity it's going to be zero, but it is an incredible step to actually see that the BOJ has inflation, has economic growth, has a movement in their overall economy that they have not seen in decades. It's a really, really positive thing, and one that I think just needed a bit of highlighting, because there are stories out there, like Japan, that you need to be aware of.
Speaker 1:I think economic scholars will be studying that story right in terms of how they've been able to manage that aging population, but to see that finally, that economic cycle starts to turn, and let's also not go a bit further to say that it's fixed?
Speaker 2:You're right to highlight that that aging population is still a massive concern. They still have a fairly anemic overall space. But finally the inflation story looks like it's on a bit more of a right footing, rather than what it's been forever, which is deflation.
Speaker 1:Beautiful, all right. So let's now turn our attention back to the Australian market, and normally we'd go straight into the RBA decision. But because we got the GDP numbers for the December quarter released only in early March, I thought we needed to spend a little bit of time to paint a picture in terms of what's happening with the Australian economy and how it is sowing. So what we did learn in the Australian economy only grew by a subdued 0.2 of 1% over the December quarter. Now, this is the sign that the previous 13 interest rates are really biting, and what we're seeing here is growth in the economy. Economic activity is halved over the second half of the year compared to the first half of 2023. So 0.5 of 1% versusa 1% growth in the first half of the year.
Speaker 1:Now, looking at these numbers from the population growth point of view, what we've learned is the annual growth rate is below the record 2.6% annual increase in the population that we've seen. So this has resulted, in theory, in terms of 1% annual fall in GDP per capita. So the only reason why we're actually in positive GDP growth territory is population growth. That's been the only reason. So the population has growth, has initially supported that demand and provided a source of resilience, but now, as that population growth slows, we start to see the fading effect on that in terms of the data. As those incomes become elevated, we then start to see higher income taxes and higher interest rates payments weighing down on spending, according to economists from the St George Bank. Evan, what did you see in the GDP numbers so?
Speaker 2:there was lots of little sort of nuggets, I think, is the way to say it to you, ben. So, first and foremost, net exports. So we forget that, don't forget. Gdp is consumption plus government spending, private investment and net exports. Net exports actually helped significantly more than expected Again, probably it's the China story that the import pricing and the cost of imports were lower than forecasted, which meant that the overall net exports so exports minus imports was higher than expected, so that contributed slightly more than what was needed.
Speaker 2:You then also look at the consumer. The consumer is the big one. For the first time since COVID lockdowns ended, we have started to increase our savings rate, not by much, but enough 3.2% increase. And that is so clear that the household now is batting down the hatches to deal with 13 interest rate rises and the highest cash rate since 2012. And that is all part of that story. And again, the chart that Ben has on screen and just read out to you shows that not only are we slowing down, but there is every sign that the consumer is now foregoing things that they originally were happy to do. They're not anymore.
Speaker 2:Because, again, one of the other things that stood out to me was transportation around. International travel fell 9%, but home domestic travel or near travel, so places like Indonesia and New Zealand that rose by about 5%. So again for me and what Ben and I talked about all the time behavior change is absolutely clear in the data. We have already started to change our behavior, know that things are going to get tough, know that things are going to slow down and are already planning for that future. That's what I took from the GDP figures. Is that normally they're retrospective, but there was enough data in there to show what we expect in this calendar year and unfortunately it's not great news.
Speaker 1:Well, it isn't. We talked about how inflation really restricts purchasing power, or spending power as we talk about it, and the household has had 18 months of rising inflation and that has definitely reduced that sort of spending power. So add to that, obviously, residential construction activities continues to fall fast, so it's exacerbating the housing challenges that we're also facing. So the other interesting part about what's propping up the Australian economy is effectively the federal and state government spending, so their infrastructure programs and the spending and their cost of living stimulus that they're also putting in there to counterbalance horrible stories around price of electricity and all insurance costs and everything that's basically compounding to make it really challenging, and so that and we also saw a bit of life in terms of business investment. So the business community is still optimistic about a narrow path and so they're continuing to keep spending.
Speaker 1:The other thing for me in the GDP numbers was that the finally we did start to see some good news in labor productivity, so it did start to improve. So particularly in domestic services, which is that's that services inflation. That's going to be that last mile in terms of. You know the RBA is going to be wanting to be confident that services inflation is in check. Now how you get that in check is obviously higher productivity helps reduce labor costs and inflation represses, which in turn helps reduce is that services inflation. So there are a couple of green shoots in that productivity area that I did like, but it's very, very clear as, as you can see, you know, the the leave is putting the brakes on the economy and stopping that economic flywheel is really starting to play out.
Speaker 1:So what did ultimately the RBA do? While we saw, governor Bullock announced with the RBA board that the cash rate was to remain on hold at their second meeting this year, and so the cash rate remains at 4.35%, and really it was a logical call, given we didn't get a huge amount of new data. It was very much retrospective data. So it's fair to say that each meeting does remain a live meeting and it is interesting in terms of some parts of the economy are quite resilient.
Speaker 2:So what did you make of their call Evan yeah, it was always going to be the same call in terms of you can't move from what they did back in November where they increased the interest rate from 4.1 to 4.35%. You and I have discussed that last meeting. That was that necessary. They argue that it is you and I sort of maybe slightly more on the fence on that. I think also, what they're sort of still seeing is that there is still a slow lag dealing with the data and there are no. Unfortunately.
Speaker 2:There are calls and caveats out there that are suggesting that there's even chances of no rate movements in 2024 at all and some are even forecasting rates up Now. I want to point to that one quickly because again, the RBA is certainly, although they're saying it's a two way street, their intention is to hold or to move down. They don't believe that an additional level of pressure would probably actually help overall. The caveat also is government spending and we'll talk about that in a minute. But government spending is the unknown quantity here, particularly around interest rate sorry, tax cuts that we're getting the possibility of a made budget. That could be stiletry.
Speaker 2:So the RBA has got all of that to juggle. So right now they're probably right. They're not going to move rates before the end of this financial year, so June. But there is a lot of other things that I think starting to creep into their thought and we just talked about GDP and that, for me, is the other part of the story. Is that, at what point does GDP contraction start to go as the front and foremost important thing over the inflation story?
Speaker 1:It's really interesting, evan, in the sense that the RBA still has this tightening bias in their commentary and their language, and I think that's well founded in a sense, because if everyone still thinks property prices are on the move, so there could be a wealth effect going on, that the federal government are signaling they're going to give more cost of living stimulus, like there is this sort of small 10% chance that we could see another rate rise. Now, again, that's a 90% chance that it's not going to happen, but that's the sort of messaging and that's I think. I think they want to be jaw boning in terms of that narrative out into the marketplace because they still want people to be slowing down their spending, right. It really is going to be an important part of that story because let's take a look now at the a couple of charts on the inflation story. So we'll start with the inflation for the month. So we saw the number come in at 3.4% for the 12 months to January. So that's the latest data we've got Now. That's following a 3.4% rise in December. Now when you look at the chart, it looks like inflation is falling, but no, no, that just means that inflation is still growing, but just not at the higher rate that it was. So we're not in disinflationary territory. Prices are still going up, and so that obviously is a problem. Now, the most significant price rises were in housing, I remember that's construction costs and also rents. So it was 4.6%. Food and non alcohol beverages plus 4.4. Alcohol and tobacco 6.7. Again off the back of the tobacco exercise, I suspect in there. Insurances and financial services, plus 8.2. So those insurances, those insurance costs, are really ballooning.
Speaker 1:Now let's have a look at the second chart, which is the measure of underlying inflation. We've got a fair bit to talk about here, because there's a lot to unpack in this particular story. So, looking at the year on year story, the inflation rate is now 4.1 to the December quarter. Now that's down from 5.4 in the September quarter, so it's below it was below market expectations of 4.3. So it's surprised in good news. On the upside Now, this was the lowest figure since December quarter of 2021, as goods inflation is for the fifth consecutive quarter and services inflation finally started to slow and it's the second straight quarter in a row. We saw some good inflation coming down. Notably let's go through some of the unpack, some of those numbers Inflation moderated in food 4.5 versus 4.8.
Speaker 1:Housing 6.1 versus 7. Health 5.1 versus 4.5.4. Transport 3.7 versus 5.6. Recuration and culture 0.5 versus 5.6. Education 4.7 versus 4.8. And insurance and financial services 8.1 versus 8.6. So they're all coming down, they're moderating, but still increasing. Costs fell in clothing so this is disinflationary negative 1.1 versus 0.9. Furnishing and household services negative 0.2 versus 2.5. Now, bucking the trend, the price increases were quicker, included alcohol and tobacco 6.6 versus 4.9. Furniture 6.9 versus 4.9. And communications 2.2 versus 1.3 percent. So in terms of the RBA's preferred measure of reporting, trim mean, and so Evan's going to unpack this in more detail we saw that increased by 4.2 percent, coming off 5.2 again in the September quarter, but remained outside the central bank's target of that 2% to 3%. That's our RBA target here in Australia. So okay, evan, plenty of data to digest here. The big question is are we still walking a narrow path? Is the RBA going to be able to do that, or are they going to also face the challenges of sticky inflation, which is what we're seeing starting to show up in the US?
Speaker 2:So they are still walking the narrow path with the data that we have. I think that needs to be put out there. First and foremost is that, yes, they're still on track.
Speaker 2:You talk to us before about something like tobacco, for instance. Don't forget that there was an increase in taxation on tobacco that can explain most of the price increase there. You highlighted also what we've been discussing through this entire talk, which is imported goods, things like apparel, things like overseas travel, all these kinds of things they're contracting, and that's consumer behaviour also that we've discussed. So there are all of those sort of signal calls that we need to see are working in the right direction. However, there are outside of the control. That is a concern. You've highlighted very particularly what's going on in housing, and don't forget, housing makes up around about 11% to 12% of the entire inflationary story, so it's a big one and that's the one you know. The moment it started moderating but it's ticked back up again. Services also, and again they are and will be the headache, but overall it's still at the moment walking the fine line.
Speaker 2:The question is do we start following the US?
Speaker 2:We get to about 3% and we start to moderate and plateau rather than dropping into the 2% to 3% handle, and you can see from the chart on screen, we're still a full 1.1% away from where we need to be at the top of that band, not even in it just to touch it. There is growing things in there. That that's why there is a little bit of nervousness, why some people are still quite hawkish. As I've said, I'm still going to put my hand up and say I know I'm going to get this wrong, but that's all right. I still think interest rates cuts are coming this year. I still think it's in the second, probably actually the final quarter of this year, because the RBA is all sudden is going to start cutting when the tightness gets to a level that GDP starts to really fall and unemployment really ticks up. But it won't be at the same speed, probably that I was hoping and, as I said, the unknown quantity is fiscal spending and what the government does to try and counteract it as well.
Speaker 1:Well, I think you've nailed it there for me. I would move my forecast if I see a stimulus budget come out from so it's definitely going to be a bit more challenging. So most of us would like that cost of living support. But we then realise, wait a minute. It's then going to add to higher inflation, and so for those of us who are old, what is it Hand?
Speaker 2:in glove problem. So all of what we're discussing here is that you give with one and take from the other.
Speaker 1:And again.
Speaker 2:The discussion that we'll have in a minute is also around our interest rates actually impacting evenly with regards to what it's doing on the economy, because there is certainly growing data that is not, but we'll come to that in a minute.
Speaker 1:Yeah, okay. Well, let's look at the unemployment data now. And we did see that the February unemployment data doesn't come out until the 27th of March. So we are still looking at the January data and we pretty much saw a flat reading of some 500, you know, 500 people increased in terms of seasonally adjusted terms and then now the labor force, which is those people looking for work, grew by 22,800. And that's the trigger that moved basically the unemployment result into 4.1% from 3.9 in December.
Speaker 1:So there's a lot of economists who are saying once we get out of that January period where you know we traditionally see more and more people not working in January and then starting to look for work again in February, so we may start to see that unemployment rate move back down with the three in front of it as opposed to the four.
Speaker 1:Because I've said previously on the last update that once I started seeing a four in front of unemployment I was thinking that's going to play favourably into an earlier rate reduction than what we're seeing. But if that is a seasonal variance and we get back down into a reading of 3.9 or whatever that is, then again you know we're going to see interest rates staying higher or flat for longer. In terms of the under-employment trend, however, shows that there's three months average of basic employment grew by 0.4, the slowest pace since the Delta COVID outbreak of 2021. In trend terms, the employment to population ratio continues to also moderate, down to 64.1% in January from a record high of 64.5% in October of 2023. So, evan, in terms of the participation rate, what did you also see there, when we also have a look at the state-by-state chart that we've also got in front of us?
Speaker 2:Yeah, so I'll do the second part of that question. First, the state-by-state chart is showing, though, that the trend is that unemployment is rising, so we need to take that very clearly. You look at New South Wales, victoria, queensland, wa they are the biggest employer states, no disregard to South Australia and Tassie. From what is going on in the trend there is that they are starting to move away from those incredible lows. If you look at Queensland, for example, they have the highest unemployment rate in the country at the moment, and it's only getting higher. They are a big, big mining construction sort of state and they're always a good canary in the coal mine view of what things are going.
Speaker 2:The first part of your question, the participation rate. Sometimes we forget about this. Why? I'd say that is that we have, statistically, a strange way of measuring the employment data, but without going into it too much. Basically it's a survey that's extrapolated to the population. If the participation rate actually falls, it can improve the unemployment rate. The reason for it is that there is actually those people that drop out of the survey. It's not looking for work, which therefore means they're unemployed, but because they're not looking for work, they're not included. That is a misrepresentation of the data, in my view, it's always been a concern, although we might be saying it's fallen back into a three-hand all. If the participation rate keeps falling, you'd actually argue that the unemployment rate is much, much higher.
Speaker 2:The underutilisation rate, which is the underemployment rate and the unemployment rate combined that will start going back towards your mid-teens, upper-teens levels that it got during or leading up to COVID. That would be the other way that maybe the RBA will justify what's going on, why they're not raising rates, why, again, although we've got an unemployment rate that's lower, that it's not actually overall improving the economy. Then the final part of this again, we keep skirting around this bend with regards to the fiscal side. Don't forget that Bracket Creep has been one of the biggest reasons that the government has an incredible number to tell you in May that is also part of this is that, although we are working more, we're getting paid. More more of it than ever in history is going to the government. That may also actually help. Inverted commas, because we don't have as much disposable income, slows us down. The question is what the government does with it, and that will be the other side of this. Is it going to stimulate or is it going to bank it again?
Speaker 1:Well said, let's move on now and package up consumer confidence and sentiment and also look at retail sales. We saw the Westpac Melbourne Institute Consumer Sentiment Index in Australia jumped 6.2% to a reading of 86 in February and that's up froma reading of 81 in January and it's the highest reading in 20 months. Remember, we're still pessimistic Now, so that still means that you know, we're not necessarily at that sort of level that we're all celebrating and that's where the RBA wants us to be. They want us to be less spending, less confident, keep our money and our wallets as part of that particular point. But it's certainly, you know, this period of time where we've seen below that 100 mark. It's the longest streak since the early 1990s recession. So this has been, from a, you know, consumer sentiment and confidence point of view, one of the worst periods of this survey. So that sort of just gives you some context. So let's also then look at retail sales, and we saw retail sales in Australia increased by 1.1% month over month in January, which is the latest data at the time of recording sales for clothing, footwear, personal accessories retailing bounce back 2.4% versus a negative 5.4% in December, along with those of household goods retailing, which was 2.3% versus negative, 8.2%. Department stores 1.7 versus negative, 6.5,. Other retailing 1.7 versus negative, 5. Cafe, restaurants and takeaway food 1.3 versus 0.7.
Speaker 1:And we're basically seeing that the February data from mine is a signal for the RBA that they're made. You know that's a lot of improved retail spending. Now that's a per capita read. It's hard to get around that. So I then sort of bring myself back into a year on year. Look at this and I see retail sales in Australia increase by 1.1% in January and you can put that down to, I think, increased population growth and nothing else. Evan, what do you see in terms of the consumer sentiment and retail story?
Speaker 2:So if the consumer sentiment is kind of weird and why I say that, is that we are really pessimistic about now and what's been, but actually more optimistic about the future.
Speaker 2:And that probably comes down to the idea of what we've been discussing, which is rates. The consumer is expecting rates to be cut, so they are expecting that, and if you look at what their next five year expectation is, economically, it's much, much better than it has been. So, again, this is what the RBA is sort of and has been highlighting this in the story around inflation, psychology, growth psychology, blah, blah, blah that we are hearing and believing it, and so, unfortunately, the catch with that is that believing it and it actually happening at two different things and that you know, unfortunately. You know a bet is not a fact, as they also say, and that that that's what I see around the confidence numbers. So it'll be interesting to see what happens as rates get put on hold for longer than they expect.
Speaker 2:If that starts to fall again and I expect it to retail sales, I at the moment they are so skewed by changes in habit and spending and also timing. Do not underestimate the impact that November is now having on all of this data. So Black Friday and Cyber Monday is completely destroying December sales. If you actually try and average them out over three months, it's actually showing that overall retail sales year on year is contracting since October. So again, it's messy data and that's why it's hard to really give a good you know explanation to you guys out. There is because at the moment the data is changing in a very short period of time a couple of years but it's not seasonally the same as what we would compare it to previous years. So that's why I'm a bit hesitant on it. I do apologize.
Speaker 1:Well, that's, that's fine. I mean, I think what we need to be doing is, when we see some of these new retail sales data coming out, we want that slowing down If we want interest rates to come down, if everyone's feeling pretty good because they're forecasting interest rates to come down and they're they're moving early, which is what they're doing on property. We know that story better than expected, and so that then creates that wealth effect. So back to your point before about the savings ratio starting to etch up, and you know we also talked about, you know, there's a big, huge sort of demographic which is the baby boomers, and and they're they're in pretty strong position, right, they're obviously baptizing their properties. So we'll talk to that in a bit more detail when we talk about the property side.
Speaker 1:Well, let's let's wrap up the the economic numbers by looking at the business confidence and conditions, and we saw that the NAB business confidence index edged down to a reading of zero in February from January January's reading of one. Now, this figure is below the long term average, with the retail sector being the major drag, amid the cost reductions of spending power that we're seeing in that that area as well Now, in terms of business conditions rose. However, now that's back above the average, which is a reading of 10 versus seven in January, as sales 14 versus nine, profitability nine versus six picked up, while employment grew further six versus five. So this is also telling us again that businesses are still pretty. Conditions out there are still pretty good for businesses. Forward orders continue to ease negative point three. So that's that forward looking stuff. So again, that's the slowing versus negative point two. As did capacity utilization 83.4 versus 83.7. So that's coming off. Labor costs growth stayed at 2% in quarterly equivalent terms, while purse ish costs grew by a steady 1.8%. So those input costs are still growing and that's flowing through into the overall finished product costs.
Speaker 1:In terms of product price, growth quickened. So we saw a reading of 1.3% versus 1.1. In retail price growth rose by to 1.4% from 0.9. Recreation and personal services prices increased more 1.3 versus 1.1. And quoting Alan Oster, who's the chief economist of the NAB Bank, who produces this report, he pretty much says it quite simply. These results are a good reminder that progress on inflation to date has been driven by an improvement in global supply and from here the improvement is unlikely to be linear, was his statement, and I concur. This is bouncing around services inflation. What can you add to that story?
Speaker 2:Yeah, I think that's a beautiful way of putting it is what he's basically alluded to. No longer can we rely on supply inflation to be the only factor that drives this. Demand is there, it's the demand story. Now it is coming off. We know that. We've gone through that this entire hour, but it is still certainly above what you would normally expect with 13 rate rises. It's still above with the cost of living. You know pressures that we have and that will be the next thing to see that moderation in that space.
Speaker 2:I think also, again, you look at what's happened in confidence, what's happening in the conditions. That differential has been like that now for almost a decade, but the width and the spread of it is getting wider. So business confidence continues to be really, really lackluster, but the conditions are actually better than expected and that is also something that NAB highlights quite strongly in. Again, the conditions are there. It's why employment is still growing, it's why people are still getting wage increases. You know economic flow is still stronger than expected but overall business leaders know that things are slowing and they're preparing for that.
Speaker 1:So there's a disconnect as well in that space.
Speaker 1:Yeah. So I mean we've summarized it overall. What we're seeing here is there has definitely been a spending movement towards that essential spending. Naturally, the classics, you know shelter, clothing, the food, the staples, other people you know in terms of inflation, sorry insurances they're also essential spending for a lot of us as well. So we have seen a decline in that discretionary spending and I think the RBA will be looking closely in terms of whether that's increasing or not, whether we still see, you know, that revenge travel story still taking place or if that continues to start easing off as well. You know, coming back to the other big themes that we've been talking about in terms of other businesses going to keep investing and what's government going to do in terms of stimulus, in terms of their fiscal policy outlook in the May budget is going to be quite interesting, obviously, you know. Coming back to the employment story, we still need to see the breaks being put on in the economy and, hopefully, that unemployment story going up. I know that sounds counterproductive, but we need that for ultimately lower inflation and ultimately lower interest rates, and that productivity improvement sign is also good for services inflation. So I still think there is a narrow path that the RBA is trying to tread here and I think that's a fair and reasonable assessment of how difficult it's going to be for this last mile.
Speaker 1:All right, let's move our attention now to our final section on the docket, and that is obviously the property data story. So we saw CoreLogix February Hadonic Home Value Index come out and we saw a really strong result in Sydney plus 0.5 of 1% for the month. Thank you very much, thanks for taking time. All right, tojun K histories guys, see you, plus 0.9 of 1%. Adelaide 1.1. Perth a clear standout, as we clearly predicted at the start of the year, which is very much an affordability story and investor driven over there as well. 1.8% up for the month. It's incredible. Hobart continues to decline negative 0.3. Darwin an anemic 0.1. Canberra 0.7, which is also pretty strong. And I miss Melbourne there by design, because Melbourne is definitely being one of the poorer performers and you look at the median value in Melbourne is sort of disproportionate to its overall economic position. But that is purely designed based on some of the state government's decisions that they're making around their housing policy down here and that's really saying that investors are tapping out of that particular market or not interested in buying into that market. Now I do want to make an important point here, because this is my wheelhouse. I've been through these types of government policy cycles before in different states and territories over the journey and it does impact sentiment and it does ultimately impact in terms of buyer activity. That's if you think in the short term. And so ultimately the next government that comes along will reverse these types of policies, because the story of Melbourne is going to be a chronic shortage of rental accommodation, vacancy rates very low and continuing very strong rental increases until they work out that they need to bring the tens of billions of dollars back into the economy from the mum and dad small business private rental accommodation provider. So that is going to be the story of Melbourne. So if you want to buy counter cyclical in Melbourne and take a decade's view over the course of next 12 to 18 months, you're probably going to be looking at that. But bear in mind that you're not going to pay short term higher land tax costs. So obviously that's a tenant tax as we refer to it, because it will be passed on to the tenant when conditions are at that sort of imbalance between demand and supply.
Speaker 1:There was also a couple of graphs that I wanted to point out At the start of the update. We wanted to highlight the change in the quarterly value and this comes back to Bryce and my predictions episode on the property couch podcast a couple of weeks back, where we were talking about. It's very clear to us when you look at the core tiles, so you can see here on this graph and for those listening along the lower quartile and the middle quartile. So the middle quartile represents from 25 to 75. And then the lower quartile is the bottom 25% of values and then the upper quartile is the top 25, from 75 to 100% of the values. Now, historically, this is the ripple effect. This is the power of the big city centers driving that economic growth and we always see that the upper quartile usually leads the change in values and then that trickles down into those other markets. But again, you see examples of where there's manipulation in the marketplace, such as APRA with their 3% buffer rate, which is still in place, which is reducing borrowing power. So it was a pretty easy prediction that Bryce and I made about which are going to be the best performing markets and those markets are going to ultimately be the lower and middle quartiles as opposed to the upper quartile.
Speaker 1:So let's look at the final chart here where we see these breakdowns and we can see in terms of the Sydney quartile, it's very clear that the bottom end of the market and the middle end of the market is outperforming the top end. In terms of Melbourne, where you're seeing contractions in property prices over a three month rolling till February, you can see that the biggest value that's been given up is at the higher quartile. Brisbane can clearly see that the cheapest price points of the markets are performing everywhere else. Adelaide, same story. Perth, same story. Hobart again, you can see how that contractions working from highest values falling further than the lower values. And then Darwin you're also seeing some of the lower price points doing quite well because the yield story in Darwin is a ripper. And then you've got the ACT, where the middle market is actually doing most of the heavy lifting. But you can also see the lower quartile the cheapest property price is growing, but the upper quartile also stagnant as well.
Speaker 1:So that was the message that I want to put out there for the property market. For this update We'll be obviously doing another one in about six weeks time, so we'll do some more deep diving into vacancy rates and what's happening with yields and rents and that type of thing as well. But that just gives you some clue in terms of what's actually happening out there. So finishing up for me, before I hand over for a final word from Evan. It's really clear that there is the data is going to inform where we sit. Sentiment does seem to be okay in the Australian market, so we're going to see what that correlates in terms of the consumer. We know the government's going to spend because it gives them votes, and we obviously know the business conditions are still okay but easing. So it'd be interesting to see where that goes. What's your final take as we wrap up, evan?
Speaker 2:So my final take we've been sort of alluded to through the entire talk is about also the impact of interest rates on the whole economy and why. I'm finishing on this point. Ben's just highlighted perfectly what's going on in the property market and where it's at. There was data that came out in the last six weeks that showed that one in four house purchases last year was in physical cash only. Now that should be the case, because what we know the majority of it is people that are downsizing or people that are now moving out in empty nest scenarios. That's a good thing to see. Actually, I think that's a positive. But it also shows that one third of people don't have a mortgage, and if you think that one third of the entire housing population also rents, it shows you that already 66% of the population is somehow not touched by interest rate movements, and that is the other part of this equation. It's a conundrum to leave you.
Speaker 2:One I think it's a good one is that, realistically, a third of the population is feeling the pressure. We know that it's not a new comment, but what it also asks the question about is whether or not monetary policy is the only thing that we need to be using right now to try and slow things down, because if we do and as it's showing, sticky inflation is coming there has to possibly be other options to try and get it down, rather than a sledgehammer that is interest rates to move it. So that will be the debate going forward this year is that there are a small parts of the population wearing it when what was in the past, and they're actually parts of the populations that are benefiting more than usual because of their current situation, the economic cycle.
Speaker 1:So are you? Are you trying to tell me that, evan, that governments will look at fiscal policy when they're running a big suit?
Speaker 2:What I'm saying is that the thing that governments need to start looking at is and we've started to hear it over the last 16 months is tax policy. Now again, governments hate tax policy because it doesn't buy votes, as you highlighted quite well, but it needs to be started to be discussed. That taxation particularly for those that are over 55, needs to start to be reviewed. Why I say them? They are the ones moving into superannuation. They are moving into tax free environments. More and more spending on things like health and that kind of space is done through government spending and therefore, do you have to start asking the population?
Speaker 1:to start fixing up that with all.
Speaker 2:that's the question, and I get into a lot of trouble with it, but I'm okay with it. It has to be raised. That discussion has to be there because if the older generation is getting an interest rate rise to their term deposit or cash rate return plus, they don't have an interest rate on their mortgage because they don't have one and they own, as you highlighted, a wealth effect that is just growing anyway. They are sitting pretty and any more interest rate rises helps them because they can spend more, because they've got more in their back pocket. So that is the conundrum that I'm leaving you with. Is that how do we address that problem going forward? That will be the next question, and it's the big question, big hairy, audacious question that all governments, all central banks are going to have to ask over the next five years how are they going to deal with the skewed demographics that are now coming out of economics?
Speaker 1:100%, and I've been saying really on record for over a decade now that if you think that tax policy, superannuation policy, death taxes and all of that will stay stagnant where they are and governments have the fetish for spending, and now the community is getting, since the GFC, this whole stimulus and everything. Now then COVID, we now expect our governments to buy our way out of all of our problems and if we continue to expect that, then ultimately we're only on a road to higher taxes in terms of that story, and it will bring higher taxes. It will, and so that is the story that we're on. So, which reminds our great community that we still got to strive to be self-reliant. As much as you don't want to be reliant on government to basically fund all of your retirement, you don't want to be on pensions, you want to be able to build up a bit of a nest egg and get the power of compound on your side, but bearing in mind you will pay. I have no doubt that this transition of generational wealth is $3 trillion that's going to roll down. The government aren't not going to look at trying to take some of that away from you and then ultimately, as you build family wealth and legacy and generational wealth. They will continue to keep shaving away at that to try and provide for those most need in our community.
Speaker 1:The big, the $64 million question for me has always been just how much welfare is enough welfare? You know you keep giving too much welfare away and you're not stimulating those people to actually try and get into the workforce and try and build up their own wealth. But certainly we need to make sure that the most vulnerable in our community are protected. But that is the great debate of politics in central politics versus far, far left, and I think that's a wonderful way to keep people guessing in terms of where we're going to go. But just make no mistake, they are going to come after taxes at some point because they will continue to try and take more of our money, which is that's why I'm a big believer in smaller governments and less spending. But that's not going to be what happens in our country. So until next week, always remember knowledge is empowering, but only if you act on it. The next RBA meeting will be on the 7th of May, so that's when you'll hear from Evan and I next. So until then, take care and bye for now.
Speaker 3:Hey folks, bryce here again. I just wanted to catch you real quick before you go. If you're new to our community, I want to encourage you to listen to our very first 20 episodes, as the concepts we share in EPS 1 through 20 are foundational principles, pillars and frameworks that you need to know for you to get the best value from our content week to week on our show. My little tip is to listen to it at one and a half speed. Now, for those of you that are time poor and don't have the option to go back to the beginning, don't worry, because we've got you covered as well.
Speaker 3:We've created a binge guide that summarized these foundational episodes into one easy to digest booklet so that you can get up to speed super fast. So go to the show description on whatever device you're listening to now and simply click on the first 20 episodes link to download it straight away. Oh and, by the way, whilst you're there, you'll find a few extra goodies for you, including a link to download our lifestyle by design app more, the home of wealth, speed and wealth clock, and our hugely popular MoneySmartz money management system, as well as how to get free copies of our bestselling books. Now, just a reminder that anything we cover on this podcast is not considered to be financial advice, and we certainly recommend that you seek out expert advice tailored to your unique circumstances, and everything we talk about is general in nature. Folks, I want to encourage you again to click on the show description, wherever you are listening, to access all the free goodies we have for you Until next week.