Good news on the horizon as inflation falls again
Finally, some more good news on the inflation front with today’s 2.1% number being released to the market. Inflation has been a problem for the past few years and one of the reasons behind the RBA keeping rates high.
There will be some that voice concerns over the “trimmed mean” figure is still being above 3%, but we're willing to look past that. The biggest fall in prices has been for energy, thanks to the government energy rebate. We realised it in our household when we saw our latest energy bill, which came in lower than expected.
Government incentives and subsidies are working to reduce energy prices, and that is spilling over into lower inflation. This is very good news.
While some say the government measures should be ignored because they are temporary, we actually think that they could be prolonged because they're working.
What type of government doesn’t want to win votes?
We go into an election year in 2025 and there is no doubt that the current government will do anything it can to contain economic damage. That may include extending energy subsidies and thus claiming victory over inflation. The fiscal position is strong, and the measure is affordable.
Positive for real estate
House prices have been flat over the past couple of months and could remain so until the RBA starts cutting, probably in March. It’s not the cut that matters, instead its the intention and the signal to the market that its time to buy.
We’ve all seen what a change in sentiment in the US election has done to stock and crypto prices. Markets behave on sentiment and we now have a good short term window for buying quality assets before they start rising again.
The last thing the government wants is to go the election next year with high rates, high inflation and a housing market that isn’t rising.
We think Black Friday and Christmas retail numbers will be down on last year, signalling a consumer that is fatigued and an economy that is starting to turn for the worse.
Lower housing costs will show up in Jan/Feb inflation numbers, and that will give the RBA more comfort to start moving before it’s too late.
Peter Esho is an economist and Founder of Esho Capital. He has 20 years of experience in investments and markets.
