There has been a lot of celebration – in some quarters at least – over the last week following the resignation of Victorian Premier Dan Andrews, the respective grand final wins by Collingwood and Penrith and the RBA keeping interest rates on hold for another month.
The biggest celebration came from homeowners after the new Reserve Bank of Australia (RBA) Governor, Michelle Bullock, announced the bank would keep interest rates on hold at 4.1%. She stated that the pause would “provide further time to assess the impact of the increase in interest rates to date”.
Recent data on inflation indicates that while inflationary pressures on the price of goods are easing, the cost of many services is on the rise. That said, while the RBA believes inflation has passed its peak, it is still too high and will remain so for some time to come. They are anticipating that inflation will ease and gradually return to the target range of 2-3% by late 2025.
The recent rally in oil prices has resulted in higher fuel prices which is challenging the RBA’s efforts to curb inflation. As Australia’s economy continues to grapple with below-trend growth, I believe we will continue to be in a period of caution until the full impact of interest rate rises has been realised.
RBA's four key areas
There are four key areas that the RBA will monitor to guide its future decisions on interest rates, which include the global economy, household spending, the outlook for inflation and the labour market. On the last point, the unemployment rate is forecast to rise to around 4.5 per cent by late 2024, which may indicate that interest rates will drop as wage growth will be impacted.
Overall, the current situation is a positive sign as the Australian economy seems to be stabilising. If we can keep our trade relationships healthy, especially with China and manage any geopolitical events that arise, Australia will be well-placed for future growth. As our population increases, more people will enter the labour market, which will likely result in easing the cost of services.
I’m reminded that during these times, fortunes are made, as those who are wise buy good assets with a longer-term view. Essentially, they’re buying tomorrow's returns today, which is in stark contrast to the masses who continually try to buy yesterday's return.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au