Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, 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.

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Wednesday, 23 April 2014

Good news for homeowners as inflation remains benign

Inflation well under control

The much-awaited inflation data was released this morning and the news is that inflation remains benign enough and thus this is very good news for homeowners.

CPI remains in check and therefore interest rates are set to be on hold for quite some time to come yet.

Conversely this is adverse news for those who have been predicting a slowing housing market, since there will be no imminent interest rate hikes to come to their rescue.

It's small wonder that people get confused by market commentary - one the one hand people cite a weakening economy as a market risk, and on the other hand they warn of rising interest rates. 

We may well get one or t'other, I guess, but it's unlikely we'll see both - at least, on a national level.

Softer reading

The data showed that inflation remains benign, suggesting that the stronger readings in Q3 and Q4 were something of an aberration.

What this means is that is absolutely zilch chance of an interest hike in the immediate future.

Depending on how the economy and future inflation readings pan out we might yet see a rate hike towards the end of the year, although, like everything else in the future, that remains to be seen.

Just to put this in graphical terms, here is what has happened to the headline inflation over the past decade as compared to the Reserve Bank's 2-3% target range (click chart):

The print of 0.6% for the quarter (the market had expected 0.8% q/q) and 2.9% for the year (market expected 3.2% y/y) sees headline inflation now sitting towards the top end of the 2-3% band, but this was a significantly better reading than had been feared.

The stuff which went up in price included alcohol and tobacco excise, healthcare and fuel, but this was offset by falls in the costs of travel, household equipment and clothing.

As you can see from the chart above, the headline inflation figures can have a bit of a wild ride.


What the Reserve Bank is generally more interested in is the underlying readings (trimmed mean and weighted median) which strip out the outlying figures and give a smoother reading (click chart). 

With underlying inflation sitting snugly in the target range at just 0.55% for the quarter and 2.65% for the year, there appears to be little cause for concern here and thus there is no pressing need for the Reserve Bank to shift interest rates - in either direction.

All of which should put a bit of a smile on the face of homeowners today.