Inflation decelerates away from target

Rates heading to zero

Headline inflation came in 1.59 per cent for the year to June, with a surge in the price of auto fuel this quarter, but not a whole lot else. 

It's a sign of the times - and of how inflation targeting credibility has been stretched - that such a weak result was met with a chorus of headlines about strengthening inflation.

Looking at the core measures, trimmed mean inflation of 0.42 per cent for the quarter saw the annual result slow from 1.64 per cent to 1.61 per cent, while the weighted median inflation measure decelerated quite sharply from 1.37 per cent towards a record low at just 1.24 per cent. 

Lumping the two in together, here's that 'rising' inflation chart, with not too much sign of the 2 to 3 per cent target band being threatened since 2015, and the trend now weakening for five consecutive quarters:

Hmm!

If you were being generous and looking very closely, you might say that the deceleration happened from a marginally revised up base.

But, still. 

Low inflation was both imported and due to weak demand and wages growth domestically.

Non-tradables inflation was benign over the 2019 financial year at 1.8 per cent, and tradables inflation considerably slower still at 1.1 per cent. 

Rental CPI, meanwhile, has been tracking below income growth for half a decade.

The wrap

We're heading towards half a decade of inflation below target, risking talk of asymmetry. 

As noted yesterday residential construction is now dropping off at a worrisome pace, which will result in tens of thousands of job losses and, presumably, the unemployment rate rising away from NAIRU towards 5½ per cent.

Cement maker and supplier to the construction industry Adelaide Brighton (ASX: ABC) scrapped its interim dividend today amidst a swathe of impairments.

Meanwhile one of the largest private developers in the country, The Ralan Group, has announced its collapse.

Voluntary administration risks sending "billions of dollars of east coast apartment projects" (AFR), thousands of associated jobs, and several thousand apartments presently under construction hurtling towards the gurgler. 

Plenty of other developer groups are reportedly teetering on life support.

Lost decade

To hell in a hand basket?

If I’ve read one article about the end of Australia...I must have seen seven thousand of them.

Which, incidentally is where stocks are heading...

Source: ASX

All-time high.

Predicting the next recession seems to have become a sad national sport, but to not much avail.

—-

Iron ore spot price closed up 2.3% at US$121.75 per tonne.

CPI figures for the June quarter are out later this morning.

Approvals crunch continues

Approvals crunch continues

A look through the building approvals figures in 45 seconds.

Unit and townhouse approvals have crashed nearly 40 per cent lower year-on-year, driven by Sydney, Melbourne, and to a somewhat lesser extent, Brisbane. 

June was the lowest month for attached dwelling approvals in Sydney in more than six years. 

The annual total for house approvals was also well down across Sydney (-13 per cent), Melbourne (-12 per cent), and Brisbane (-21 per cent). 

And the month of June also rounded out the lowest ever year for public sector approvals, with the government effectively bowing out of providing new accommodation altogether, at least in terms of net additions. 

Piecing it all together dwelling approvals were down 26 per cent over the financial year to about 14,300 in June, in seasonally adjusted terms. 

Annual approvals have thus fallen from 239,000 in FY2016 to just 187,000 in FY2019. 

These things always work with a long lag time, but once the existing glut of dwellings is cleared down there will be shortage of rental accommodation in the major capitals. 

There's also much less stock on the market now in Sydney in particular, making life tricky for prospective buyers. 

Source: CoreLogic

Commute times blow out

Commuting from some place

Property investors take note.

Commute times have blown out by about by 23 per cent since 2002, and as such commuters will naturally flock to live in areas where there are excellent transport connections for the major employment hubs. 

The latest HILDA survey showed that by 2017 Sydneysiders spent some 71 minutes per day on average commuting, up from 60.6 minutes in 2002. 

The malaise in Sydney has been partly arrested when measured as a mean daily average as more apartments have been built close to train stations. 

But it's still a hellish commute for many suburban dwellers. 

The same holds true for Australia's other 'more mature' capital city, Melbourne. 

In Brisbane, there has been an apparently inexorable 45 per cent increase in mean daily commuting times since 2002, to an average of 66.7 minutes.

In fact, Brisbane now has the second longest mean daily commuting time after Sydney. 

This has put pressure on land prices in Brisbane's inner ring (less so apartment prices, due to a recent building boom). 

RMIT's Centre for Urban Research noted that infrastructure has failed to keep pace with population growth. 

Bonds yield the ghost

Yields down again

More records.

Markets are now fully pricing two further interest rate cuts by H2 2020.

And the 10-year government bond yield is now down to just 1.198 per cent (even the 15-year bond yield is at just 1.33 per cent). 

3-month bills are also at record lows.

Banks are jostling for market share, with fixed mortgage rates now available from just 2.79 per cent. 

That's a freakishly low rate with conditions attached, but looking at these charts there'll likely be many more mortgages available with a low 3-handle in the second half of the year. 

Auctions action

Sentiment shift

Auction clearance rates in Sydney and Melbourne continue to hit into the mid low-to-mid 70s.

A year ago Sydney had a clearance rate in the 40s, so it’s quite a turnaround, albeit on low volumes.

Source: Shane Oliver (AMP)

The clearance rate in both cities was higher for units than houses this week, at about 80 per cent.

There’s somethings of a mini-mortgage war getting underway.

Lenders are busy cutting fixed rates, and quite aggressively in some cases.

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Have a a great weekend!