Per capita recession beckons
GDP growth came in at an extremely low 0.2 per cent for the March quarter.
Of course, after accounting for Australia's rapid population growth, GDP is going quite sharply backwards on a per capita basis.
These days the national accounts analysis seems to come in so thick and so fast that there's not so much for me to add here, except to note that investors should - as ever - aim to not buy into too much of the mad hysteria which relates to backwards-looking data relating to the January to March 2023 period.
As I see it, the big picture is that's there's little doubt that interest rate hikes will have the desired impact, as they always have in the past.
By the March 2023 quarter, the interest payable on dwellings had increased by a stonking +107 per cent from a year earlier, with further increases to come in the June quarter.
Of course interest rates take time to work their magic...but work they will, and maybe too well.
The flip side to this chart shows that the household saving ratio had already dropped from a high of 23.6 per cent in 2020 to just 3.7 per cent by the March 2023 quarter, and will soon be at close to 15-year lows of close to zero, further slowing down consumer spending.
One interesting point of note is that Australia's terms of trade remain extremely high for now, historically speaking, with the modest increase in the March 2023 quarter in part driven by a decline in import prices (due to oil trading lower over the quarter).
There was a brief period at the peak of the resources construction boom when the index was higher that it is today.
Australia's key commodity prices are generally speaking on the way back down, however, led by thermal coal, coking coal, iron ore, and natural gas, and this should help to slow the excesses in the economy too.
Enraged commentators always need something meaty to get their teeth into, and today it was real unit labour costs increasing by 0.1 per cent, and the potential for negative productivity figures adding to inflation concerns (and thus the risk of further rate hikes).
Trying to be a bit more sanguine and with an investor's hat on, Australia's 3-year bond yield has made a round trip in returning all the way back up from to where it was a year ago at a bit under 3¾ per cent.
Moving over the peak
Overall, it's been said that it's best to invest for how you think the world will be 24 months from now, rather than how it is today.
In the US inflation could feasibly be back down to 3 per cent very soon, but in Australia - where the international borders stayed closed for a long time, lest anyone need any reminder - it's clearly going to take longer.
One of the major contributors to inflation is now rents, with reports of significant increases in south-east Queensland leading the state government to once again consider rent caps (if they actually worked, then hey, why not just cap the price of everything?).
7 News reported that in the prevailing tight rental market conditions landlords are passing on rising interest costs to tenants, fueling the fire with sharp rent increases, while tent cities have been in evidence in Brisbane and now on the Gold Coast.
Paradoxically, it's doubtful that yet further interest rate hikes will help in this regard - actually it will make the rental supply shortage worse - but still financial markets are pricing for one more rate hike before the interest rate cycle finally peaks.
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Speaking of moving beyond the peak, it looks as though UK house prices are finally down a notch from a year earlier, although analysts expect only a modest price decline in nominal terms.
Having initially declined, prices are 20 per cent higher than their pre-COVID level.
