Inflation battle recommences
There's been a lot of online pushback against the idea that global inflation rates are retreating.
That's in spite of the evidence that over the past six months core PCE US inflation is running at an annual rate of well under 2 per cent, and with rents and used car prices in the US set to fall going forward.
What could cause a second wave of inflation from here, and in particular for Australia?
Some of the most common reasons given include spiralling wages and labour costs, which seems unlikely given the ongoing softening of the economy, rising retail prices (ditto), rents and construction costs remaining under pressure (far more plausible), and perhaps most curiously, lower inflation itself leading to more consumer spending (?).
Taking a step back, the most obvious source of a rebound in inflationary pressures could be oil prices and/or geopolitical shocks flaring up further, such as in the Red Sea, for example.
In any case, Australia's next quarterly inflation figures aren't due out until the end of January, and even then these figures will only show headline inflation dropping back to around 4 per cent for the calendar year 2023.
So we're a bit further behind on this journey Down Under, in any case.
Still, financial markets seem to think we are through the worst of the inflationary risks, with falling interest rates expected for Australia over the course of the next 18 months.
Source: ASX
Expatriate viewpoint
A couple of loose observations from my annual Xmas visit to Heathrow and the Shires beyond.
Firstly, it was the source of a minor middle-aged thrill to be able to pay 129.9 cents for a litre of unleaded fuel last week, having been punished with an outrageous two quid on a previous visit to the Old Dart.
And secondly, as someone who travels a fair bit due to an expensive combination of necessity and curiosity, it was something of a relief to be able to secure round-the-world economy airfares for a family of four for just £9,000 (GBP).
We're due to attend a wedding in Boston MA later in the year, so a round trip taking in London, the US, Sydney, Singapore/Dubai, and back to London seemed to make the most sense for us.
I think it's safe to say we'd have been forced to fork out a truly eye-watering amount for such a trip not so long ago, so airfare prices are evidently healing as more airlines bring travel routes back up to the required capacity.
NerdWallet found that by November global airfares were -12 per cent lower than a year earlier (and actually below 2019 prices), with car rentals down -11 per cent over the year, and its overall travel price index also down -3 per cent from November 2022.
Overall, although many prices may be higher since 2019, annual inflation rates are generally expected to retreat, and could even turn negative if policy stays tight for too long.
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CoreLogic reported housing prices rose +8.1 per cent in 2023, with double-digit capital growth increases in Sydney, Brisbane, and Perth, and strong price gains in Adelaide.
Source: CoreLogic
Rents increased 10 per cent for units, and 7½ per cent for houses over the year, so rental increases have slowed somewhat (despite remaining very high).
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