Inflation Up, House Prices Down

Here’s the Australian Bureau of Statistics latest Monthly Household Spending Indicator released 10 January 2023 for the November 2022 reference period. Noting that this is an experimental indicator using bank transactions. In this chart, we can see that household spending has been going steadily upwards since about January of 2022 and is up over 50% since 2019 in current price calendar adjusted terms.Show more

This isn’t particularly surprising if you look at the latest consumer price index over the same time period, essentially a measure of inflation, which has been dramatically rising over the last year. It’s currently sitting between 7 and 8%, so no, you’re not imagining it, prices have been rising much more than normal.

Excess deaths have been a real issue over the same period of time. Am I saying they’re related? Well, people have been blaming excess deaths on climate change, so why not blame them on inflation as well!

The Reserve Bank of Australia has responded to inflation by rising interest rates every month since May 2022. As long as inflation continues upwards, I can see no reason why they won’t continue this trend.

If you look at the RBA’s latest Household Sector Chart Pack released on 4 January 2023, we can see that Consumer Sentiment is rapidly plunging. It’s now well below 80, noting that any number below 100 indicates pessimism in the economy. Consumers, on average, feel negatively about their finances and the state of the economy.

Over the last few decades, housing prices have been rapidly going up as a percentage of people’s income concurrently with the amount of debt they’ve got themselves into. When people get access to bigger mortgages, understandably, housing prices go up. It should be noted that housing prices have been trending downwards of late, but I don’t like to comment on that. However, I will mention some of the latest news headlines. The Sydney Morning Herald: “Deepest house price falls on record won’t make property more affordable: experts” – After the pandemic, I really I hate that word “experts”. Financial Review: “Record downturn sends house prices plunging 8.4pc from their peak”. This graph shows historical housing declines with the current one shown in red being the worst one yet. Will it continue? I don’t know, but probably it will if the RBA keep raising interest rates, which they will as long as inflation is out of control.

Household spending going up, inflation skyrocketing, interest rates rising, plummeting consumer sentiment, household debt, largest house price decline on record, what else can go wrong, really? As the Australian Financial Review have been reporting, “There is no guarantee that Australia gets a soft landing”.

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Allégro by Emmit Fenn