Hello and welcome to my October Economic and RBI update . Now , what are the key focuses in for this month ? Well , the first one is around mixed economic signals on the inflation front . So what we are talking about here is sticky inflation .
It's certainly challenging compared to the downward trajectory that we're trying to achieve with inflation , so that's one of the things we'll take a deeper dive on . In terms of on the property front , I want to talk more about supply within each market . We'll take a deeper dive , focusing on that as we get to the property section of this update .
And then , finally , to round out this update , I'm going to share with you an important behavioral economic lesson in terms of inflation and what it means for investing , because I've made this mistake .
I was hopeful that we wouldn't do this , but it's something that was definitely shown up in the data and I need to remind myself and I need to remind you about it , obviously , when it happens again at some point into the future . So that's what we're going to be focusing deeply .
Obviously , we'll do all of the regular updates , so let's get into it , starting off with kicking off with an update and looking at the US market to start with , and I wanted to talk firstly about the inflation data .
So after some recent steep falls in inflation , the consumer price in the United States rose by 0.6 of 1% month over month in August after a 0.2% increase in July . This monthly higher CPI story is one of higher energy costs , which rose by 5.6% of a 0.1% increase in July , the index for gasoline being the largest contributor , 10.6% versus 0.2% in July .
All the energy index accounted for over half of the monthly CPI increase result overall . Also contributing to the increase was continued advancement in the shelter index , so 0.3 of 1% versus 0.4 , which rose for the 40th consecutive month . So certainly accommodation costs are increasing in the US .
Meanwhile , food inflation was steady at a rating of 0.2 of 1% , after a softer increase in the cost of food at home . 0.2 versus 0.3 was offset by further advances in price of food away , which obviously we call takeaway food , which was a rating of 0.3 of 1% versus 0.2 of 1% .
With the US Fed Reserve target for inflation being 2% , it's becoming clearer that getting inflation down to this target range is proving difficult unless the Fed slows the economy down even further . So there is talk of that happening Now . That's a nice little segue into the United States interest rates decision from last month .
So the Fed Reserve kept the target range for the Fed funds rate at a 22-year high of 5.25 to 5.5% at its September meeting , following a 25 basis points hike in July , remembering that they don't have a meeting in August as it is this summer . At this meeting they did signal strongly that there could be another rate hike this year .
Projections released by the policy makers they call it a dot plot forecast showed the likelihood of more increases this year than two cuts in 2024 . Policy makers projections have the Fed fund rate at 5.6% this year , keeping with their June forecast . However , they moved their 2024 forecast higher to a reading of 5.1% compared to 4.6% seen in June .
Now it's a clear signal that the Fed is pulling away from more rate cuts in 2024 as inflation remains persistently higher . There's that sticky inflation Now .
As a side note , the US inflationary story is running several months ahead of our story here in Australia and , yes , we have several different factors influencing our local economy , but we also have a lot in common with the US . So if inflation remained stickier there , it might be problematic here in Australia as we move into 2024 as well .
Looking at the labor market data now , we saw the unemployment rate in the US rose to a reading of 3.8% in August , from a reading of 3.5% in July , and it's the highest since February of 2022 and above market expectations of a reading of 3.5% .
The number of unemployed people increased by 514,000 to 6.355 million and employment levels rose by 222,000 to 161.484 million . Now , the so-called U6 unemployment rate , which also includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment , went up to a reading of 7.1% in August .
This is the highest since May of 2022 and it was up from 6.7% in July . The labor force participation rate increased to 62.8% , the highest since February of 2020 and from 62.6% , which added to the highest overall unemployment rate increases that we've just seen there , where it would move from , obviously , 3.5% to 3.8% .
Now , looking at the consumer data store in the US , we saw retail spending retail sales in the US advanced by 0.6% of 1% month on month in August , higher than the downwardly revised 0.5% of 1% July rise and beat forecast expectations of a 0.2% advancement .
In terms of the data continued to point to robust consumer spending , despite high prices and borrowing costs , and is being driven by a strong employment story that we just talked about . However , the consumer's willingness to pay higher prices is still making the Fed's job harder in battling their inflation challenges over there .
Consumer confidence , on the other hand , while we saw the University of Michigan's consumer sentiment for the US fell to a reading of 67.7 in September from 69.5 in the previous month , retreating further from the year-to-year high of 71.6 in July , the figure aligns with slowing optimism , among other forward-looking indicators consistent with the Fed's aggressive tightening
campaign on rates and their attempts to slow the US economy . Overall , the gauge for current economic conditions fell sharply to 69.8 from 75.7 in the previous month , as soaring prices for food and fuel hurt consumer purchasing power and eroded living standards .
So , on one hand , the US consumer isn't confident , but they keep spending , offering up those mixed signals to the Fed and obviously giving them those challenging economic conditions to make their judgment calls about interest rates . From the business side of the equation , what did we learn ?
Well , the ISM manufacturing PMI climbed to 47.6 in August from the previous month's 46.4 , slightly exceeding market consensus of a reading of 47 . Even , although slightly higher , it's the 10th consecutive month where manufacturing is declining in the US . From the services side , the preliminary result of the S&P Global US Services PMI showed .
It fell to a reading of 50.2 in September from 50.5 in August . That was below market expectations of a reading of 50.6 . It was the slowest rise in business activity in the current eight-month sequence of growth .
And this is a good new signal for inflation that services businesses in the US are not going to have to look at pricing , as opposed to obviously just passing on those costs to consumers .
So in summarizing the overall US economy , we are seeing that they are finding it increasingly challenging to manufacture a soft landing as inflation on the back of this still healthy employment and consumer spending picture appears more sticky than they would like it to be .
And , although I didn't highlight it yet , higher worldwide oil prices are also feeding into higher energy input costs and inflations overall . And we're seeing that in other economies , also in Australia here as well , and I'll be talking about that a little bit later .
All right , let's turn our attention now to the second biggest economy in the world , china , starting again with their inflation story , and we saw their month on month . The consumer price index in China increased by 0.3 of 1% in August over July reading .
On a year on year basis , china's consumer prices rose by just 0.1 of 1% in August , compared with market forecast of a rise of 0.2 of 1% . Core consumer prices , excluding food and energy prices , went up by 0.8 year on year , the same pace as in July , and remain at the fastest pace since January of earlier this year .
As I've been reporting the past couple of months , china's inflation problem is that inflation is actually too low and this is causing concerns about the overall strength of their economy . Their number actually needs to be higher is obviously all about positive developments that need to happen in their local economy .
So when we look at their interest rate story , what do we learn ? Well , we saw the People's Bank of China maintain lending rates at their September meeting . During that , they cut the one year rate in August and reduce their reserve requirement ratios for banks to help free up funds to lend .
Now , the one year loan prime rate , the LPR , which is the medium term lending facility used for corporate and household loans , was kept unchanged at a record low of 3.45 . And the five year rate , which is a reference to mortgages , was held at 4.2% for the third straight month .
So China continues to have an easing bias on rates as inflation remains benign In terms of their employment story , we saw the Chinese survey urban unemployment rate inched lower to a reading of 5.2% in August from 5.3% in July . Now the figures returned to June's 16 month low .
The jobless rate in 31 large cities and town edged down to a reading of 5.3% in August from 5.4% in July , and the average weekly working hours for employees in enterprise across the country were unchanged at 48.7 hours .
Looking at the consumer picture now and we saw retail sales we don't get a lot of data out of China , so all we've got is retail sales in China increased by 0.31% in August over the previous month of July . So it's a little bit of lag data , but it's giving us some indication that there's a little bit of increased retail spending locally in China .
In terms of their business picture now and we've got a good amount of business data that gives us some insights in terms of is the economy moving gears into hopefully a better outcome over there ? The official NBS manufacturing PMI rose to a reading of 49.7 in August from 49.3 in July , exceeding market forecast of 49.4 .
And just remember anything above 50 is expandatory . Anything below 50 is obviously contractory . In terms of the output Now the output grew the most in five months to a reading of 51.9 versus 50.2 in July , and new orders expanded for the first time in five months to a reading of 50.2 versus 49.5 .
At the same time , buying activity advanced for the first time since March 50.5 versus 49.5 , while delivering time shortened the most in six months , in terms of 51.6 versus 50.5 . Meanwhile , export sales fell at the softest pace in three months 46.7 versus 46.3 .
So export sales are still declining , but ultimately they're not declining by as much as what they have been recently . Now , on the price front , input costs climbed for the second straight month and at the fastest pace 56.5 versus 52.4 , while output charges accelerated for the first time in six months 52.0 versus 48.6 .
So , finally , business sentiment improved to a six month high of 50.6 versus 55.1 . So let's summarize what we see in the Chinese data .
We're seeing the government stimulus that they've rolled out at the sort of first half of the year is starting to pull through into those latest economic data numbers , and they are definitely showing some positive signs of a slowly improving economy .
We saw that in the industrial production numbers that we just read , and also those retail sales are signs that they're picking up China's biggest ongoing concerns and challenges and what they must tackle still remains the weak overseas demand for their exports and also their property market downturn that they're managing through over in China .
Rounding out our offshore update , let's look at the Eurozone now , starting with the inflation data , like we've been doing Month on month . The consumer price index in the Euro area increased by 0.5 of 1% in August , slightly less than the 0.6 rise in the preliminary estimates .
Still , it's the biggest increase in consumer prices in four months , with energy costs rising the most 3.3% , as they , too , are facing challenges around sticky inflation .
Looking at the annual inflation rate in the Euro area , we see that it's a revised lower at 5.2% in August from the initial estimate of 5.3 , which is better news as it's the lowest reading since January of 2022 . A year earlier inflation was much higher , at 9.1% , but it still remains more than two times above the ECB target range of 2% In August .
The biggest upward pressure like that at the same issue that we have in Australia , came from the cost of services inflation . So we're reading a 5.5% versus 5.6% . So still very , very strong services inflation , followed by food , alcohol and tobacco 9.7 versus 10.8 , so that's coming down . A non-energy industry of goods 4.7 versus 5% .
So on the way down , but still sitting too high .
In a further sign of stickiness in their inflation , the ECB , like the Fed , us , recently revised their inflation forecasts upwards for both 2023 to 5.6% and 2024 to 3.2% , primarily driven by increased trajectory in energy prices , and their forecast for 2025 , the central bank , anticipates inflation to average around 2.1 .
So they've got that inflationary forecast coming in around their target range in 2025 . So inflation remains the biggest challenge , obviously in the Eurozone . That's a good segue into what the ECB did when it made its rates call last month . So , on the back of that higher inflation challenge , the ECB hiked interest rates for the 10 consecutive months in September .
But what was more interesting to me was they also signaled that they are likely done with their tightening policy , and this is an interesting call given where currently inflation currently sits .
So , that said , obviously I think they're trying to get that balance right in terms of trying to bring some confidence back into the market , but also being mindful that inflation is still their biggest problem .
So it's clear that they still have plenty to do , but there's also quite clear that rates will probably stay a little bit higher for longer in 2024 as they still battle with getting inflation under control Now , on the back of these higher interest rates , for longer , the ECB has also significantly reduced its GDP forecast projections , now anticipating that the Eurozone's
economics economy , I should say , will expand by only 0.7 of 1% in 2023 , by 1% in 2024 , and by 1.5% in 2025 . Looking at the employment story and we see that the EUO area seasonally adjusted unemployment rate stayed at a record low of 6.4% in July , matching market forecasts . A year earlier , the jobless rate was higher at 6.7% .
Still , the number of unemployed people increased by 73,000 from the month earlier to 10.944 million . Consumer confidence now we saw the consumer confidence indicated in the EUO area was confirmed at negative 17.8 in September , the lowest in six months .
Consumer confidence in the European Union also declined markedly for the second month in a row , as survey respondents became more pessimistic about their households' past and future financial situation and the expected general economic situation in their respective countries . Consumers also signaled decreased intentions to make major purchasing decisions .
In terms of consumer spending , we saw retail sales in the EUO area decreased by 0.2 of 1% month on month in July , following an upwardly revised 0.2% rise in June . This data is a little bit lagging . We're talking about June and July data . So it's hard to gauge the current spending . Given the additional increases in interest rates the ECB has announced .
Only one can expect spending will deteriorate further at the back end of 2023 with those higher interest rates . In terms of the business picture now we see the business confidence data in the EUO area improved to a reading of negative 0.36 points in September from a negative 0.41 points in August , but still very much in negative territory .
So we've got real challenges in the EUO area and the EUO region . So it's clear that the next few years are going to be softer in terms of economic growth .
It also makes the political environment a little bit more challenging because obviously , if conditions in their respective citizens become more challenging than they currently are , that obviously creates political uncertainty around that as well .
So obviously we'll all be hoping that they can manage their inflation challenges better from this point forward so it doesn't cause any further worsening and economic impact over there . All right change of pace .
Now let's move our attention back here to the Australian economy and , as I always do , let's start with the RBA cash rate announcements from our new governor , michelle Bullock , for her very first cash rate decision as governor . And what did she and the RBA board do Well . As widely expected , the cash rate was kept on hold at 4.1% .
Now , like many who watch and commentate in this space , the narrative after three consecutive pauses and now this fourth pause was that we've reached the end of rate rises for now , as inflation was tracking towards that 2% to 3% target range . But , as you'll see in the data that we'll go through later , this stickiness around inflation is becoming a challenge .
Especially when you factor in fuel price increases by around 30% in the last month , you will get a little bit spooked about the possibility of a further rate increase as petrol prices climb .
For the household and from a business perspective we see transport costs are a critical input cost for most goods and services and so , combining those also with raising wage costs , you can't rule out the idea of a further rate rise before the end of the year , and the RBA Governor and the Board are making that point clear to us all and are still saying that
they'll be informed by the latest data coming up before they make their next decision . But we certainly can't rule out a further rate increase before the end of the year . In closing out the section of this RBA update , I've also added a review of the national accounts data that was released last month .
So our GDP , our gross domestic production , grew by 0.4% of 1% in the June quarter , after a revised upgrade of the same result for the March quarter . This result does demonstrate that our economy continues to show a level of resilience on the back of high employment and also strong population growth .
The explosion in population growth over the past year has been a big part of this resilient story and the federal labor government aren't going to slow this down because of two critical reasons .
Firstly , they still have a shortage of labor needed across important industries and this obviously will increase the migration of that skilled labor coming in and that will put demand in those areas , will meet demand , but it also will put downward pressure on wages as more people are seeking work in the economy .
But secondly , if we look at the official GDP per capita , we've actually seen a technical recession of GDP per capita . So that's two negative quarters and the labor government doesn't want to enter the next election in an economy that's in recession . Okay , so that will obviously damage their chances of reelection .
So this additional population greatly helps them in keeping the overall GDP and economic growth positive because obviously labor has traditionally had an image problem when it comes to being good economic managers . So those two things aren't going to change .
So you're not going to see the labor government reduce the amount of immigration coming into the country anytime soon . Finally , the other big news in the national accounts still remains the productivity challenges . It's definitely our Achilles heel as it continues to weaken . Yet wages are increasing Obviously on the back of this .
So is the unit labor cost adding to inflation . It's one of the biggest challenges that the RBA and the government is bringing inflation down in the short term . This is one of those biggest challenges in terms of impacting that .
So my opinion here is we just have too much regulation in this country and less and less personal accountability , and this obviously then flows on in terms of increased regulation and costs and makes productivity and reform even harder .
So it's one area that the Productivity Commission is being pushing very strongly for in terms of being able to increase that productivity story .
So my message here is whilst labor costs continue to grow , calling victory over inflation in this cycle also remains up in the air and it will be continually challenged through this sticky inflation if it persists , if we can't get that productivity up and those wages costs is down , and those costs not being passed on to consumers .
So good segue , obviously , into our inflation data . And so the monthly inflation indicator rose 5.2% over the year to August , and that was up from 4.9 in July . Now , as expected , the reacceleration in headline inflation was largely driven by a rise in petrol costs , as the Aussie dollar remained under pressure and global oil prices went higher .
So double whammy there . When excluding those volatile items like petrol , annual inflation slowed to 5.5% in August from 5.8% in July . So core inflation , which is the main reader from the , from the RBA , is actually coming down . Now . Disinflation in further work is further working its way through goods items , so that is very good news .
However , services disinflation stored , which on the face of it might not be great news , but if you also could consider the positive news in that is , given that there's a backdrop in terms of those higher minimum wages and starting wage costs that are flowing through in the data , it's actually not bad that it's basically hasn't gone up , it's just actually flattened
and so it's on disinflation , but it's not further increase inflation . So when you add all of those wage costs is coming through , it's actually okay . That said , you know it's .
It's also really important and I've been focusing in on this on my last two updates that further progress on services disinflation is required if we want to keep interest rates from moving again and also making sure that we get in top of that inflation story . So the goods inflation story looks great .
The service in inflation story is still our concern Because when we look at the sixth month annualized terms data , headline inflation accelerated in the month while the core measure move barely moved . Now is this an early sign that inflation is becoming sticky here in Australia , and that's been part of my core theme of today's update .
Now , the biggest driver of the stickiness in the inflation , what is it ? It remains housing , so plus 6.6% , on the back of higher rental prices . Transport positive 7.4% , so there's those fuel costs coming through and food 4.4% .
The other developing story here in terms of challenges and services inflation is insurance costs plus 14.7% are becoming an increasingly large contributor to the inflation and to inflation continuing to accelerate , and that is obviously presenting a further upside risk to sticky inflation and inflation overall .
All right , let's move our focus now across to the labor market and labor forces , and what do we saw ? We saw the employment surge back by 64,900 jobs in August , reflecting a rebound from the 1.4004 in July . Now the bounce reflects a recovery from seasonal effects after the timing of the school holidays impacted July data .
Average growth over the past two months was 31.7,000 new jobs , only slightly below average monthly growth over the past 12 months , which is a reading of 34,200 . Whilst the labor market remains tight , only a tepid slowing is underway . On a three month basis , employment growth slowed to 30.3,000 from 33.5,000 in July and down from the 2023 peak of 48.1 in March .
So it's moving ever so slowly in terms of higher unemployment . So the unemployment rate was unchanged at 3.7% , as strong employment growth was matched by gains in the labor force . In a sign of strength , the participation rate rose to a record 67% . The employment to population ratio also rose to a near record high of 64.5 .
Now the labor market still needs to cool further than it is if we want the RBA to be happy , especially if wages growth continues but productivity growth doesn't improve , something we'll need to give here . It's either unemployment needs to rise or the RBA is going to pump the brakes again and lift the cash rate .
I know that doesn't sound great , but the RBA has made it perfectly clear that inflation is their number one target . All right , let's look at the consumer story now . And what do we see in the consumer sentiment data ? The Westpac Melbourne Institute Consumer Sentiment Index fell 1.6% in September to a reading of 79.7 index points .
Confidence has now endured its longest spate of entrenched weakness since early 1990s recession . This is despite the Reserve Bank RBA's third consecutive rate pause , announced in September at the time that the data was collected . Households continue to remain concerned by the corrosive impacts of inflation on household income and wealth .
This was reflected in the family finances versus the previous 12 month sub index , which fell to a reading of 61.5 , the lowest level in over 30 years dating back to June 1992 . How's that correlating into consumer spending ? We saw retail sales were up by only 0.2 of 1% in August , following a 0.5% increase in July .
Despite this increase , aggregate growth remains soft and also underwhelmed consensus expectations . In annual terms , nominal retail spending increased by only 1.5% , which is the weakest annual growth rate so far in two years , when you adjust for record population growth and still strong price increases .
Nominal per capita spend fell by negative 0.1 in the month and is negative 1.3 through the year , demonstrating the pressure households are under in an environment of elevated inflation and higher interest rates .
In August , spending was driven by clothing , footwear and personal accessories plus 1.3 , cafes , restaurants and takeaway and other retailers plus 0.7 and department stores plus 0.4 . In contrast , spending on household goods is negative 0.4 and for food is negative 0.3 , as they both fell .
Looking at the business data now and there's continued mixed messages in the data sets We've got a fair bit to get through here , but hopefully it paints a really interesting picture in terms of what we're currently seeing . Business conditions rose three index points to a reading of plus 13 in August . That's the strongest reading in four months .
Resilient conditions have been a feature in this cycle . Despite consumer confidence having been deeply pessimistic over the last 12 months , the bouncing conditions in August was underpinned by an improvement in all three subcategories . So trading was plus 18 , profitability was plus 13 and employment was plus 9 .
Resilient conditions saw a marginal improvement in business confidence . In August the confidence index rose one index point to a reading of plus 2 . The mood among businesses has now improved for three consecutive months but for overall context remains weak by historical standards In terms of good news story on the inflation perspective .
After a concerning spike in July , cost pressures moderated in August , growth in input costs ticked up while labor growth costs slowed , confirming the pass through of the minimum wage increases drove a bump in July .
Now , despite higher cost , growth in sale , price eased , with retail prices pulling back by almost one percentage point , the sharpest fall since April of 2022 . In more good news on inflation , on face value , it seems firms are having more difficulty passing on higher cost to consumers . I should underline that that's good news in terms of passing on higher costs .
In some not so good news for inflation pressure , a step up in capacity utilization to its highest level since March , at a reading of 85.1 , points to ongoing constraints on production , notwithstanding a recent moderation in demand , but also adds to inflation risks unless we see demand continuing to slow In .
Not so good news also is the fuel transport costs that we were talking about earlier . We did see that increase flow through into the September and October data . That's going to be challenging for us .
So it's just how much higher can those transports go and how much of that can be passed on in terms of higher prices through those businesses , which will result in higher inflation , or will those businesses have to find cost savings elsewhere ? Now , continuing on in terms of some of the other business data to get a greater picture .
Here we're seeing , you know , the tougher business conditions playing out . So , especially in business profits , we saw a plunge of 13.1% in the June quarter in a further sign of the slowing economy . Mining profits plummeted 21.3% as commodity prices dropped sharply negative 13.7 . Non-mining profits fell 5% in the quarter , but were 5.1% higher compared toa year ago .
Outside of the mining sector , manufacturing negative 8.9% . Transport , postal and warehousing negative 11% . Rental hiring and real estate negative 11.8 . And wholesale trade negative 6.8 . With the largest contributors to the weakness in the quarter and 9 out of 15 sectors reported falls in quarterly profits .
Businesses began running down large stocks of inventories that have been built up past the supply chain disruptions have e . So inventories fell by 1.9% in the quarter , the largest quarterly drop since the June quarter of 2020 . This was led by mining negative 5.2 , wholesale negative 2.3 and retail negative 2.1 . Trade and accommodation food was off by 1% as well .
Now , growth in wages and salaries continues to moderate , a further sign of the easing in the labor market pressures , as labor supply continues to outstrip demand . For now , wages and salaries rose 1.8% , the slowest pace since September quarter of 2021 .
Now , if profits are falling and costs are going up but consumers aren't buying , then logically businesses are going to have to start looking at reducing their headcounts and this means the unemployment rate should increase further from here . Now I have been saying that , but again , it continues to be resilient .
So if we don't see that happening , as I mentioned earlier , it's going to put further pressure on interest rates and inflation . Looking at the property story now , so paving over to property , and what did we see in the results of CoreLogic National Home Value Index .
They recorded a 0.8% growth in September as the recovery trend moves through its eighth consecutive month of growth nationally . So prices sorry . This follows a rise of 0.7 in the August number . Now that was revised down from 0.8 , taking the quarterly pace of growth in national home values to 2.2% .
Quarterly growth is eased from a reading of 3% gain in the June quarter . Now that reflects there is a price slowdown and this is all on the back of advertised stock levels rising and we're going to take a deeper dive in that very shortly which is helping take some of the heat out of the market .
So , in general terms , city markets are outperforming regional markets and , furthermore , after leading the initial price recovery in our biggest cities of Sydney and Melbourne , the upper quartile values are slowing in growth and the broader middle quartiles and in the other state markets and the lowest quartiles are now doing the bulk of the price lifting story .
So that has definitely changed the ripple effect of the higher markets cooling but those middle markets and lower markets are pushing those values .
So the lower price quartile remains under buying pressure because the most from most likely , the affordability constraints linked to borrowing power by both home buyers and also investors are pushing up demand into these affordable markets . So let's run through the capital cities . So we saw Sydney , plus 1% for the month . Melbourne , plus 0.4, . Brisbane , 1.3% growth .
Adelaide , 1.7 growth . Perth , 1.3% growth for the month . Hobart , negative 0.6 for the month . Darwin , a snuck out a small increase of 0.1 . Canberra , again a small increase of 0.2% . So , combined capitals we saw 0.9 of 1% growth in combined regions , only a 0.4% growth for that national overall rate of 0.8 of 1% .
So that gives us an update in terms of what's happening on a monthly basis point of view . But now , as I promised in the intro , I wanted to talk and put more further focus on the increase in the supply in some of those markets . So let's take a look at that data in a little bit more detail Now .
The three capital cities currently recording the highest capital growth right now , which is Adelaide , brisbane and Perth , have advertised supply levels that are around 40% below their previous five-year average .
Now , in contrast , the markets either going backwards or struggling to hold on to the current price increases they've got are markets where advertised supply levels are running above their average five-year levels .
Case in point is obviously Hobart , which I flagged as having a supply imbalance for several months now , which would obviously ultimately put price pressures on the downward side .
So since June of last year , their advertised price levels are almost 40% above its five-year average and the net result has been , since their price peak , prices have fallen by 12.4% and are continuing to fall .
That said , I wanna also put some pressure here in on the Melbourne and Sydney markets , but predominantly the Melbourne market is a market that should be concerning in the short term . There have been some significant shifts in advertising supply levels in the past three months with new listings so that's the change in 12 months is now 30.2% higher .
Now that now shows that Melbourne's overall supply so advertised listings overall as being at the same level as a year ago . So not super concerning , but just certainly something to watch and that's something that's really changed in those last three months as all these new listings start to hit the Melbourne market .
Now , in terms of Sydney , it still has overall 7.9% lower stock levels than compared to 12 months ago , but their trend in terms of new listings has seen 25% increase , as recorded in the data to the third week of September . So there's definitely some changes going on there . Let's have a quick look at some of the other areas .
So we see , in terms of listings for 12 months , change . Brisbane , in terms of total listings , is still down 24.3% , adelaide still down 15% and Perth down 30% . So there are those hot markets . In terms of price pressure , they're also quite affordable . So that's what's also adding to the demand and value increases in those particular markets .
Hobart , as I said to you before , they've got a significant increase in terms of the available supply and that supply is increasing , you can see there as well , by 8.7% in terms of new listings to an overall supply of almost 20% of where they were from 12 months ago . Darwin , you can see overall market is still negative 6.1% . Canberra is 8.6% higher .
So Canberra and Hobart are in the same camp there , where there's downward pressure on prices in those particular markets in terms of what you're looking at there .
So coming back to that sort of message that I was talking about , and the takeaway from this data is obviously Perth , brisbane , adelaide and even Darwin , for that matter , have potentially got supply constraints . So if demand holds up in those markets , then you're obviously gonna see further upward pressure on prices in those particular markets .
Now , as an investor , if you're thinking about Sydney and Melbourne , a lot of people might be saying Ben , you're not , you're not , you are concerned a little bit about Melbourne and Sydney . Well , that is true , in the short term I am , in terms of whether we might see price growth easing or maybe price growth being flat .
But what I can tell you , you know from an investor's point of view that when I take a longer term view , these are the two big economic engine houses . So if prices are easing , it just means you can get into the market a little bit easier .
So I think that is also an important message here , because I always wanna take a longer term view rather than just the short term view of that particular story . So my view is that they have significant upside over that longer term , and I've always been a strong advocate .
For if you can afford to buy and hold property in Sydney and Melbourne , you'll be well served by those two big economic engines and the future growth , economic activity and growth in those areas will eventually lead to significant capital growth over the long term in those land value prices as well .
But in the short term we are definitely gonna see that we're watching that supply shift to see whether that's going to be met by underpinned demand or not , because if that supply continues to keep growing and rates remain higher for longer , there's probably gonna be a little bit of price pressure or flat prices in those markets , which could be an opportunity to
look at those markets . Okay , so that wraps up my property story for this month .
I also promised at the beginning of this update that I would share a behavioral economic lesson , and this lesson needs to be remembered by investors because really I probably was wishing that this wouldn't have been the case when I was giving some updates at the start of the year around what I thought would be where interest rates would finish , and so I've reviewed
that and this is why I wanted to share that information with you about where I think I got it wrong . So I'm gonna do a bit of a scene setting here , a bit of economics 101 , and apologies for those who are advanced specialists in this space .
I realized that I am summarizing very broadly and simplifying the understanding of these technical terms , but we'll just go with it to help the broader community in terms of understanding some of these concepts . So the most important thing is , we must always remember that the economy is made up of some of its parts .
So economics is the study of this social science whereby we're attempting to measure the moving parts of lots of data and indicators . And so , within an economy we talked about it before gross domestic production is the measurement of whether an economy is growing or shrinking , based on the sum of all of the activity that happens in that .
Now , if we break that down further , what we're measuring is effectively productivity , spending or buying , depending on how you look at it and investment . And that comes from three areas it comes from people , it comes from businesses and it comes from government within an economy . So in the government spending terms , we refer to that as fiscal policy .
So government , federal governments and even state governments do their budgets so and they collect revenues in terms of taxes , dam duties , those types of things , and they spend that money . And if they need to spend more money , they take on debt , which obviously I've got a big problem with because they spend more than they earn over time .
So I'd like to see that debt level down . But they are effectively in control of running that . They provide all the infrastructure and the mechanisms and all the plumbing that runs our cities and runs our people within those cities . So that's basically the fiscal responsibility In terms of monetary responsibility , remember that's the job of the central bank .
In our case it's the Reserve Bank of Australia .
Now , in terms of the more people , businesses and governments spend , produce , invest , the bigger the economy grows , and the bigger the economy grows , the more money and wealth is created and obviously , from that point of view , the more taxes that the government receives to potentially reinvest back into the economy to continue to keep growing the pie .
However , if we spend too quickly or too flippantly in creating more demand than supply and all we are too dismissive in terms of accepting higher prices for goods and services , then this creates the potential for inflation . So higher prices will then lead into that inflation story .
Now , higher inflation , we've always got to remember , makes our money worth less , reduces spending power , reduces general standards of living for the people within the economy and it also slows economic expansion . That's why it's so important that we need to make sure that inflation is in that sweet spot of that two to 3% range over the long period of time .
So in doing during these periods of growing inflation , governments need to look at fiscal policy responsibilities and , to the credit of the labor government , we are seeing measured spending and targeted spending that's hopefully not too inflationary . That obviously makes the job of the monetary policy set by the RBA to reduce the flow of money in the economy .
So you want governments and monetary policy and fiscal policy in unison , otherwise you're going to experience some very , very difficult challenges . And so when the RBA increases the cost of money , that reduces the amount of spending by households , by businesses and by governments and that reduces the overall demand in the economy .
So it slows the economic flywheel down and those goods and services slow down , which then means businesses have to look at their prices and potentially adjust those prices , which obviously then reduces that inflationary pressure .
Now what we have seen over the last 12 months is that we are definitely seeing the money retraction out of the economy through the RBA rate tightening and some sensible fiscal policy from the government .
That is potentially bringing that inflation pressure down , although there is still some record spending coming through in terms of infrastructure spend and so forth which could be inflationary .
Now , that said , what we're trying to do here is stop consumers from spending right , because if businesses are forced to look at other ways of saving that money rather than passing on those costs to us , then we kill inflation outright . So it's really easy All you need to do is just starve that spending .
So starve the buyer , sorry , starve the seller in terms of the price you're willing to pay , and that will obviously reduce inflation because prices will come down lower . But here's what happened , okay . So this is where I need to remind myself , even though I was hopeful it wasn't gonna happen .
But when you also then see from a behavioral economics lesson point of view , you know that , generally speaking , gratification , instant gratification , will always trump delayed gratification when we look at the mass behavior of people .
So over the past 12 to 18 months , I have been reminded of this because after the government basically gave us additional money into our savings account while we were locked down , all of the businesses did well in terms of that government stimulus , the households did well and we didn't spend for a period of time .
So all that pent up demand meant we had record levels of household savings and then , obviously , once the economy opened back up , we just didn't care what we paid for Okay . So the bottom line is that if we've always got these record levels of stimulus , it is going to be inflationary .
We're always going to spend that money more broadly than we are going to save it . So the idea that an economy and the people within economy will have delayed gratification unfortunately doesn't play true when it comes to behavioral economics .
So whilst I was waiting for , you know , households to continue to keep reducing their spending and putting pressure on businesses to reduce their prices , we kept spending .
So ultimately , that has led to higher RBA increases than I would have expected , and so I definitely got that wrong during that earlier period of time , and that's why I wanted to make sure that we'd always remember that this is the case . Whenever there are high levels of savings genuinely across the market , people will spend that money .
They can't , you know , that money will burn holes in their pocket . So , looking forward today . That's our message , or that's my message to you as an investor , and so when you are doing that and you're thinking about investing , you need to be planning for these types of moments right .
So , as long-term investors , someone who's investing for decades , not just years or months you need to start to factor that into your modeling so you'll always know that when government stimulus arrives , you've got to expect inflation is going to arrive , and then you've got to expect that interest rates are going to go higher and when that happens , you've got to also
make sure that you can comfortably afford through your cash flows and the buffers . So those people who practice delayed gratification and good saving habits there really isn't anything to see here .
But for other people who don't have those savings levels , those good balances in their offset , these are those challenging periods that you have to trade through , because on the other side of this is obviously the economic upcycle . So after each slowdown in the cycle , there will be an economic uplift in that .
So if I wanted to give that message to you at all , always make sure that when you're modeling , you're outcomes , and we do this in our property planning business , where we have interest rates over the long term , set at 6.5% to 7% over a 20 , 30 , 40 , 50 year period . We've been able to sort of look at those numbers Now .
Yes , we did have record cheap interest rates that did allow us to adjust those down for a period of time , but we've moved those up . They never went below 5 , 5.5% .
So , even though the cash rate and you could buy money at 2% , we never adjusted those models because we always knew that inflation would eventually arrive back in and those interest rates would have to come back to these higher levels . So that is an important message and , as I said , I got it wrong , thinking that maybe households wouldn't keep spending .
But they did , and now we're starting to see households continue to spend with a little bit of debt . So you can start to see it in the credit numbers coming through and I'll talk to that maybe a little bit more in the next couple of months around households continuing to live the lifestyle they wanna live , we're starting to see a spike in personal credit .
So that is a little bit concerning for me . What we need to see is is households being more prudent around money management , cutting back on some of those costs , and obviously I've made this message also very clear that do whatever you can to hold on to appreciating assets .
So if you can take on a second job or do a side hustle or do any sort of way in which you can bring in some extra money to trade through this period of higher costs , because those interest rates will come back down again , then you'll be blessed with being able to hold on to those assets and you'll benefit from that over the longer term in terms of your
wealth creation outcome . So a big , important message there to finish off with .
But always remember that economic data is just a record of the actions of the people , the business and the governments operating within them , and it's how they spend the money and the more they spend , potentially the more growth there is , but obviously the more challenges on some of those households as well . Anyway , that's a wrap of obviously a fairly big update .
Again another big one , and so next month . I always want you to remember that knowledge is empowering , but only if you act on it . Until next month , bye for now .
Hey folks , bryce , here again . I just wanted to catch you real quick before you go .
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