Anyone who doesn’t care about the threat of inflation probably hasn’t gotten a home loan, but let me assure you that there are two opposing views on what happens to prices that determine our purchasing power and wealth.
One says that inflation will continue and force the Reserve Bank to raise interest rates five more times, probably by 0.25% by December, to raise the cash interest rate to 1.5%. And it will raise interest rates on home loans by a similar amount.
This could come as a shock to those who borrowed when the rate rose 0.25%, which added $ 65 a month to a $ 500,000 home loan that took in $ 780 a year. But if it happens five more times this year, it will be $ 3,900 a year for borrowers.
That’s why I don’t see it. I bet, say, a maximum of three this year, and then the RBA will hope that inflation will go away, and I’m not the only one who sees this as an opportunity.
Write to AustralianTiki Fullerton looked at the forecasts of Macquarie economist Victor Schweets, who believes that global inflation will soon return to disinflation, and that “the US Federal Reserve will retreat from its aggressive rate-raising strategy in just 12 months.”
This would be great news for those most likely to have suffered from too many interest rate hikes, and it should be good for stocks that have sold out on the grounds that the rate hike in the U.S. may be so excessive that it could cause recession. By the way, I’ve always argued that I didn’t think the Fed and our RBA were so stupid that they were deliberately creating a recession.
Victor said Tiki said that over the next 6-12 months, if he expects a more disinflationary trend (meaning that inflation persists but gets lower with each reading), it would be great to lift these fiery forecasts of high interest rates rate. “People may be surprised at how quickly some of these prices can recede rather than be inflationary. But if you go further towards the end of 2023 and 2024, you could have another significant inflation spike, ”he says.
This is the bridge we will need to cross then, and so I like the stocks in 2022 and 2023. But I expected to defend more next year for the reasons Victor hinted at.
So what could hurt the forecast of “inflation falling”? I suspect this may be due to the high wage requirements that will have to be addressed by our next federal government.
Employers are already warning unions that excessive wage demands will mean higher interest rates, but the union boss, ACTU secretary Sally McManus, will not have that.
McManus points to the RBA, which says that if real wage growth is less than productivity, then wage growth is not inflationary.
Wage growth increases costs, while productivity lowers costs, so you can see what McManus and the RBA are saying, but employers may doubt whether their workers are providing productivity.
But the question of being able to afford a pay rise can vary from business to business and from sector to sector.
The Executive Director of the Australian Chamber of Commerce Andrew McKellar has rightly spoken on the subject, with Australian Yuin Hanan told us that “according to ABS, the costs of three of the five companies have grown more than usual in the last three months.”
This is due to supply chain problems that include a shortage of staff because foreign workers went missing after the pandemic. “Having survived the pandemic, small business owners are now facing rising costs of labor and labor,” Mr McKellar said. “Businesses with already low margins have no choice but to shift the increased labor costs through higher prices, which further stimulates inflation. Calls by unions to aggressively raise wages are irresponsible in the face of worsening inflation and supply-side constraints. ”
Clearly, retailers, miners, many builders and other boomers can cope with rising wages, but CBD businesses, technology companies affected by floods, travel agencies and those affected by closed borders need a period of relief before they are expected to pay more workers.
Interestingly, our federal and state governments, which now have large budget deficits in rescuing our economy, may also find it difficult to pay salary increases for civil servants, but I think refusing to increase the salaries of teachers, nurses and police will be a difficult argument for victory for many of our political leaders.
The bottom line is that if wage increases get out of control, it will lead to higher prices on the part of businesses, and this will lead to higher inflation and higher interest rates than many of us will be able to withstand.
The only plus that can reduce inflation and compensate for excessive union demands on wages – is Victor Shvets’ expectations that problems with supply chains will disappear in 2022.
To defeat inflation, I hope Victor is as smart as Macquarie thinks, and so I say V, not to win, but V for Victor!