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Australian Property Podcast

May 1, 2022

So today I want to talk about the latest u.s gdp figures and the australian cpi figures that came out this week so please note as always everything discussed here is done so for entertainment purposes only i've not taken into account your personal circumstances nor your risk profile so you should seek professional advice before making any investment decisions so today i'm going to talk about the u.s gdp data and the australian cpi data and so um there are there there were some i guess big piece of data that came out this week and so we're going to talk first about the australian cpi data um cpi you know is the basic sort of inflation measure that's um used by the rba and basically the cpi over the 12 months to the march 2022 quarter cpi actually rose 5.1 percent um and rba typically targets a band of two to three percent so it is above their targeted band at this moment and that is typically the way that they actually measure whether they should be doing uh rate rises or not so this is quite an important figure that um that came out this week now in terms of the actual underlying uh drivers as to why the cost went up so much was two main items one being owner occupy new dwelling construction costs so you know the cost of tradies materials everything like that increased dramatically um up 5.7 percent and then automotive fuel so obviously with all the um all the stuff happening with uh petrol prices that's that's uh obviously making prices go up uh quite a lot there as well so those are key figures um and basically the cpi um index rose 2.1 for the quarter now the rba uses a more normalized range for this which i believe came in at 3.7 percent but it is still important to note that headline number there and then by comparison if we look at wages um so the q1 data is not out yet but the q4 data is out and wages only rose 0.7 for the quarter and up 2.3 for the year um and both private and public sector were both growth rates of 0.7 so basically there is some wage worth occurring um and they are expecting or at least hoping for there to be further wage growth but you can see there is some discrepancy um here between cpi and the actual wage growth figures and so um you know they now expect that it is gonna you know potentially narrow but um you know that's yet to occur so we'll have to see how that plays out over the coming months and um basically with that if wages don't increase and we have a high level of inflation that's when we can get stagflation and basically a very stuck economy so we very much want to avoid that um now if we look a bit deeper into the cpi data we can see the australian property market has already been calling off a little bit um you've probably noticed you know in a lot of areas the stuff isn't selling on the same day it gets listed and that kind of thing anymore so um you know i think that the cpi part of the calculation based on those owner occupier costs may start to cool off a bit as well so you know as there's a little bit less demand in the housing space then that'll probably calm that part of it down in terms of food and fuel i mean look this is harder to um sort of forecast what's going to happen but i am in the camp that really believes that we are going to see um you know higher food and fuel prices as a new normal um and you know while the rba is core normalized inflation was much lower than the headline figure of 5.1 it was still way above the upper band which is the three percent um so where things are at here it isn't anything like the us's current inflation rate um but there are you know a lot of calls being made about the rba putting rates up and so it seems highly likely we will see some rate rises in the near term say in the next couple of months potentially over the next year they might you know be doing a nubber in a row um and i think this is going to be quite negative for the economy in the short term uh now that's on the home front if we look over at the u.s um the u.s gdp data came out this week so gross domestic product uh came out for q1 and it was um expected that the us was still growing it was expected that there was still going to be a growth rate of approximately one percent for the quarter and the last quarter so q4 2021 was a growth rate of 6.9 percent so this is the us i'm talking about here however the actual data that came out for q1 was gdp already contracted 1.4 percent uh so that is um huge news and very very negative showing that uh even by the end of march the us economy is already you know you know it's significantly contracting already um you know 1.4 percent may not sound that significant but if that turns into three percent five percent you know seven ten percent if your economy is declining at a ten percent rate you don't exist in ten years um so well you know give or take but more or less you can see that um this is something that they won't want to let get out of control uh it can um it can you know be very grim in terms of where it goes so um i think that you know we need to be aware of this and i think this was a bit of a shock to the markets in terms of what the expectation was and we have seen quite a bit of volatility in the financial markets on the back of this news as well and so it is important to note here that you know in the us they are just at the start of their rate tightening cycle as they're speaking of at the moment and you know to already have that negative gdp print um begs the question as to how much they will let the economy contract and for how long they will before they start talking about um you know quantitative easing again so um i don't think um that we've actually seen a real decline in the quality of life for the middle class in sort of the west since world war ii um and you know while the sort of commentary at the moment is that uh the the thought is that a few rate risers will sort things out um you know i personally have a different opinion i think there's gonna be um you know much higher cost of living i think there's going to be protests and riots around the world as we've already started to see in some locations as you know the higher food and fuel costs um are just uh too much for some to to stand and then you know this is going to cause more instability across the world um and so you know while all this sounds very negative it's important to know that you know there was a saying i guess i heard a while ago um there's something along the lines of that a recession is a transfer of wealth from the poor to the rich and so basically like you know at these times this may be where poorer people may be too scared to hold on to their assets or they may not have enough liquidity to be able to hold on and that's when you know potentially the rich will come in and scoop up and buy all these assets um and then you know you can obviously see how you know things play out in time and i think you know which side of the transaction you want to be on i guess the biggest challenge with this kind of thing is that you know we don't know where the bottom is we don't know the perfect time to buy um i was working in finance during the gfc and so i literally lived through and was speaking with clients every day as they went through the the crash back then so i have seen um significant carnage uh before and i believe it is possible again uh but what i learned from that was that you know a lot of people got forced out of assets they owned and then you know fast forward five years um you know they could see the big difference in in valuations there so who knows if we're anywhere near the bottom um some bad prints in terms of uh gdp there are a lot of concerns i guess around rate rises so the the current mood of the market isn't the strongest um and so i think that you know there may be opportunities that present themselves in the coming months or years um and that may you know set us up to make some good investments that'll look good in 10 20 years time so uh difficult times ahead uh and not all optimistic news but um hopefully some of this today was of value um and please note as always everything discussed here is done so for entertainment purposes only of not taking into account your personal circumstances nor your risk profile so you should seek professional advice before making any investment decisions and i really appreciate you tuning in as always thank you so much