Might the Reserve Bank keep interest rates on hold until the second half of next year? It is a real possibility. The consensus among economists is that rates will start falling in February next year, even though many think it should happen this year. The Reserve Bank yesterday said everything is in play – although if there is a bias, it is definitely towards lifting rates. The problem is underlying inflation which has been around the 3.9 per cent level for months. And it isn’t falling anywhere near fast enough. Reserve Bank Governor Michele Bullock made it very clear that she is focused on the the underlying rate, which takes out volatile items. While the government will promote headline inflation falling back to the two to three per cent target band, thanks to energy rebates, Governor Bullock doesn’t care. She wants underlying inflation to sustainably be in the target band. “Sustainably” is important. Presumably that means seeing the underlying rate head towards, or achieve, the target band for two quarters. The next quarterly inflation print is late next month, then late January, then late May. What if the underlying rate is still 3.9 per cent? If the central bank is true to its word, then it is hard to see the bank cutting rates before June next year unless things turn pear shaped in the economy. Rate cuts are off the agenda this year, and we might have to wait longer than we think.
2. Are Woolworths and Coles worse than the banks?
It beggars belief that the two major supermarkets, Coles and Woolworths, could possibly be guilty of what the Australian Competition and Consumer Commission is alleging. The watchdog claims that the supermarkets offered certain products at a regular price for at least 180 days. They then increased the price of the product by at least 15 per cent for a relatively short period of time, and subsequently placed it onto their ‘Prices Dropped’ (Woolworths) or ‘Down Down’ (Coles) program. In an example provided by the ACCC, Woolworths offered the Oreo Family Pack Original 370g product for sale at a regular price of $3.50 for 696 days. The price was then increased to $5 for 22 days. After that the product was placed on a ‘Prices Dropped’ promotion with the ticket showing a ‘Prices Dropped’ price of $4.50 and a ‘was’ price of $5.00. There’s a similar example for Coles. These are untested allegations. We haven’t heard from Coles and Woolworths, but clearly the ACCC thinks it has a case. Who in their right mind at the big supermarkets thinks it is okay to treat customers this way? What cynical marketing expert, or price strategist, or chief revenue officer, thinks lying to customers is fine? In the case of the Royal Commission into Financial Services, what emerged was bad apples in organisations and bad processes. What's going on in the supermarkets looks much worse than that. It looks to be part of a bigger strategy. It looks more deliberate. It is so bad that it's hard to believe that it could be true. Woolworths and Coles need to have their say.
3. The housing market isn't looking so hot
Three weeks into the spring selling season and the housing market isn't looking so hot. This September through to November period is the busiest for real estate agents, and the best indicator of what's happening in the housing market. That was demonstrated by 2,700 houses going under the hammer last week. The final clearance rates last week weren't great, according to online property group Domain. In Sydney it was 62 per cent and just 57 per cent in Melbourne. Adelaide led the way at 74 per cent while Canberra and Brisbane were 43 per cent and 44 per cent respectively. Price growth is trending lower and in the case of Melbourne, prices are going slightly backwards. There is still growth in Perth, while Sydney has rebounded somewhat over the past couple of months though the pace of growth is trending lower. The price appreciation we've had in the past two years isn't happening in 2024. It is mostly a supply story. More homes on the market depresses demand and people are putting homes up for sale because they can't afford them. Sad but true.
4. Cheap electric vehicles are on the way
The electric vehicle revolution may have been slightly waylaid over the past couple of years, but it is still happening. The energy crisis flowing from the war in Ukraine, along with machinations in the critical minerals supply chain, and lower demand for EVs after plenty of early enthusiasm, has pushed the revolution off the front page. But prices are falling and sales are growing, albeit slower than previously. This week MG lowered the price of its cheapest EV in Australia to $30,990. Buyers can pick up the entry-level MG4 hatchback at that price until the end of October. MG says it's about encouraging motorists who are sitting on the fence, to buy an EV. This entry point price is low enough to capture plenty of buyers. The real competition for EVs, if we exclude work vehicles, is hybrid vehicles sales. In that segment sales are very strong - up 45 per cent in the 12 months to the end of August, according to the Federal Chamber of Automotive Industries. Combined EVs and hybrids will keep gaining market share and the revolution will continue.
5. The big news isn't rates, it's China
Maybe the biggest economic and markets news this week had nothing to do with the Reserve Bank or inflation. Maybe it was the announcement from Beijing that it was changing a bunch of interest rates and providing funds to buy stocks. There is also help for the property market. It isn’t exactly the big bang of stimulus packages, but it is a bigger bang than we’ve had any time this year. Beijing wants to hit its four per cent growth forecast and at the current run rate, it is unlikely to do so this year. In fact China’s economic growth has decelerated recently on the back of a slowdown in the property sector, which has weighed on consumer sentiment and curbed spending. After the announcement on Tuesday, the price of iron ore jumped, and the share prices of the big three local iron ore miners rose. Oil prices picked up and the Aussie dollar hit a record for 2024. The Aussie dollar is a commodities currency, and any improvement in the outlook for iron ore and coal and copper is likely to help the local unit. Australia’s economic health is inextricably tied to China, so good news for the world’s second largest economy is good news for us.
BEST OF THE WEEK
IF YOU MISSED THIS ONE, CATCH-UP NOW
Want the latest insights into the property market? Love talking about real estate, and the latest strategies to make it work for you? Try our new podcast, The Property Pendulum, presented by Domain and Fear & Greed. Out every Thursday, the first episode looks at the four things every homebuyer needs to know before making an offer.
"Sean uses various terms for share price movements and I wonder which ones mean something and which ones are just to make more interesting copy.
I assume bounced is different from rose. And spiked is different from increased. Plunged is different from dropped. Or is it?
Can Sean please give us a definitive list of the phrases to pay attention to?"
AND ONE LAST THING...
We know the property market isn't looking so hot right now - but somebody forgot to let the prestige market know. In fact, Melbourne could be on track for its first $100 million sale, as the Myer family prepare to list the historic Toorak mansion Cranlana. Check out the pictures here. Look at that lawn!
