PB-188 The Real Story Behind Inflation - Property Inc

[ Podcast Transcription ]

 I’m Peter Boyle McNess, and he is Chris Lane, and welcome to another of these regular property briefings.

And a warm welcome to you, Chris. It’s really good to be here with you. Judging from some of the questions we’ve been receiving, it would seem a number of our listeners are a little confused, especially with this new COVID variant at large in the world. Right now, inflation seems to be on the rise. So, does that mean interest rates are likely to soon be on the increase as well?

Well, despite the recent new Omicron variant, consumer demand has surged against the backdrop of labour shortages. Supply chain blockages and recent price increase. Now all of this is causing confusion and some concern. And pundits around the world are detailing strong inflationary pressures. However, the Reserve Bank feels we may have seen the worst of the COVID impact upon consumer prices.

Well, what are some of the telltale signs to look out for? Well, perhaps the first thing to look at is the easing of supply change. Every day, we hear about difficulties in sourcing retail goods and other materials. And the transport drivers disputes certainly haven’t helped things, especially in the run up to Christmas.

So, what we’re saying is that it’s almost a perfect storm of consumer buying more goods while they’re in lockdown, while at the same time, factories, ports and supply chains struggle to cope. with the surging of demand. And nonetheless, the Reserve Bank sees this as a short term problem, and there is already suggestion that these difficulties and delays are starting to ease.

And what about house prices? Well, rising housing costs tend to make up about one third of the consumer price index and have disproportionately risen over the past 12 months. However, these may now be starting to ease as well. I mean, you regularly saw clearance rates of 75 80 percent throughout 2021, which consequently caused a surge of demand of 20 25 percent in house prices, and even more in some locations, although Over the last couple of weekends, you’ve seen clearance rates closer to 60%, which would tend to reflect a more balanced residential market.

Now, the other thing is that other energies, commodity prices, things like copper has begun to stabilize, plus the price of oil appears to be easing to around $80. US. As we start to enter the new year, so some of these things have been cyclical and have disproportionately increased and therefore skewed the underlying or sorry, the headline inflation, whereas the underlying rate is actually a lot lower.

What about general consumer sentiment? Well, this is what reflects how people feel about inflation, and it’s clearly important. You recently saw the trimmed mean, or underlying inflation rate, rise to slightly above 2 percent in the September quarter. Yet, the prediction is for it to consolidate. to just above 1 percent annually during 2022.

And that suggests there’s probably only a temporary rise in Australia’s overall inflation rate, unlike the U. S. and the U. K., where their job seeker type of programs didn’t provide as much connection for the employer employee, and therefore. Inflation rates have taken off a lot greater over there. And this tends to support the Reserve Bank’s wait and see.

strategy towards prematurely raising interest rates. I mean, you’ve got to understand that basically people have been playing catch up following a long and frustrating hibernation and the economy simply needs time to adjust or readjust to what is the new normal. And as such, the outlook for commercial property looks fairly solid over the next few years.

And we should probably take more heed of the measured approach being adopted by the Reserve Bank rather than just running with some of the overseas headlines that seem to be getting a lot of mileage at the moment. That all makes a lot of sense, and hopefully has helped to rest a number of the concerns our listeners have raised.

Look, basically people have been playing catch up following a long and frustrating hibernation, and the economy simply needs time to readjust to the new normal. As such, the outlook for commercial property looks solid over the next few years, and we should probably take more heed of the measured approach being adopted by the Reserve Bank.

You know, I think you’re absolutely right. So thanks for that, Chris. Well, I’m glad you found it helpful.