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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"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'.

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

Wednesday, 26 October 2016

Inflationary pressures remain...weak

Apples & bananas

The headline result for inflation was slightly higher than expected by the market (though not me!) at +0.7 per cent in the third quarter.

As I noted here during the week, fruit & veg costs did indeed prove to be one of the key drivers with a massive +19.5 per cent spike in fruit prices following localised flooding, while housing utilities costs also spiked as had been correctly identified by market analysts.

Reported the ABS:

"The rise in fruit and vegetable prices is due to adverse weather conditions, including floods, in major growing areas, impacting supply."

As expected, an offset came from lower communication costs and, for the time being at least, fuel prices.

Soaring fruit prices helped to take annual headline inflation up a bit from a 17-year low of +1 per cent to +1.3 per cent.


The pace has quickened a little, then, but of course remains well below the 2 to 3 per cent target range. 

Traders backed this uptick to mean that interest rates will be on hold until next year, with the Aussie dollar jumping.



Core blimey

I tend to agree with market sentiment given the recent rhetoric from the Reserve Bank.

But when you drill in to the underlying inflation figures, the November 1 meeting could still arguably be a marginal call. 

The quarterly core inflation figures were very soft in Q3, with both the trimmed mean (+0.35 per cent) and weighted median (+0.28 per cent) quite a lot weaker than target.

The figures may look a bit more solid when rounded up to +0.4 per cent and +0.3 per cent respectively.

But still, very soft, and even with an upwards revision to the Q2 trimmed mean figure the 6-month annualised core figures also remain below the target range, averaging out as they do at +1.55 per cent. 


In terms of the outlook, annual non-tradables inflation has apparently stabilised at +1.7 per cent, below target for the third quarter in a row, but slightly higher than the +1.6 per cent recorded last quarter. 



This is important because non-tradables inflation is taken to be a reasonable proxy for domestic inflationary pressures, and as the red line shows, there essentially is no such pressure at the moment. 

The wrap

Overall, this was another weak set of inflation numbers which leaves plenty of room for another interest rate cut as and when it is deemed necessary. 

The main reason I don't think that will happen this year is housing. In short, the Reserve Bank probably doesn't want to stoke up the fire in Sydney's property market belly too much. 

And it appears that the new Governor is relatively comfortable with inflation running below target for a while. Thus, sitting pat until 2017, I think.

Jeepers, it could still be a close call, though, with such benign numbers.