Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Thursday, 25 July 2013

Is Australia's cost of living spiralling out of control?

I've heard it said fairly often over the last few years that the cost of living in Australia is a "dead set joke". We've certainly become a high cost country, although having visited Britain over the past month I can attest that the costs of some goods are worse elsewhere.

Is the cost of living in Australia spiralling out of control? 

Ask a macro-economist and they will tell you: "Definitely not". They would say that we as Australians are collectively suffering from Fisher's Money Illusion and highlight that since 2003 the poorest fifth of households are $42 better off and the richest fifth $576. The 'Money Illusion' concept dictates that we instinctively focus on nominal price increases rather than real price movements after accounting for inflation.

The latest round of inflation data lends support to this argument, showing inflation to be tracking comfortably in the middle of the targeted 2-3% range, which is well below the 3%+ wages growth reported for the past 12 months.


Source: ASX

I suspect however, that if you asked the average ex-mining single-income earner outside of Western Australia, they would tell you that their wages are not growing and that the cost of living has outpaced incomes.

The ABS is an independent body and has no reason to distort results deliberately, rather the reality is that looking at average figures gives you an average result. 

Wages growth has been weak for some time now in retail trade, real estate services and healthcare, for example, while it has been considerably stronger in mining, wholesale trade and, to a lesser extent construction.

As we might expect, wages growth has been very strong in Western Australia, with very high wages being paid to those completing the construction of new mining projects, but wages growth has been consistently notably weaker in South Australia than in other states for some years now.

Naturally the CPI figures show that the cost of some goods has increased more than for others. We might expect to see the weaker Aussie dollar introducing a new bout of inflation in the coming quarters. 

Don't forget that yesterdays figures are retrospective and some of the figures relate back to what was happening at the beginning of April. Petrol prices, for example, will be reported as significantly higher next quarter, barring surprises.

Good news?

The good news for Australians is that personal wealth has increased considerably over the past year.

Stock markets have been flying, with valuations moving up by close to 20%, which correspondingly has increased the value of pension pots. Property market prices have increased strongly in most capital cities which benefits owners, although not renters (rents were reported as having increased by 1.1% this quarter).

Hedging

The stark reality is that developed economies have a policy of promoting inflationary economies and it is important to have a financial plan to protect yourself from the silent thief.

Over time owners of property are likely to fare better than renters. Those who own quality share portfolios consisting of profitable, dividend-paying companies which which can grow returns on equity will see their income and wealth outpace inflation. Others will look to A-REITS or farmland as assets which can represent an inflation hedge.

A point I raised back in 2011 when I wrote my book was that with a growing awareness of and concern about the impact of pollution on the environment, any leniency which Australian governments had towards the taxing of petrol in past will disappear. My suggestions included owning properties in locations close to key transport hubs and links and to find ways to avoid driving.

This may be already unfolding: petrol prices are now at their highest level since 2008, with no signs of the increases abating. 

I also expect to see the prices of alcohol and tobacco (smokes +3% in this quarter alone) increase over time too due to the related costs of healthcare.