Plenty of Australians were back on the sidelines barracking for their football teams this past weekend.
Today, almost everyone in the country has turned their attention to barracking for the Reserve Bank of Australia to reduce interest rates.
The only ones hoping otherwise are our pensioners and those who rely on the banks paying them interest.
This week we saw what I believe is the most encouraging sign that interest rates will soon be on their way down – the Australian Bureau of Statistics (ABS) released its gross domestic product (GDP) data.
Not sure what GDP means? Maybe your eyes just glazed over? Fair enough, but bear with me.
Put simply, GDP is the value of all goods and services bought and sold in Australia.
In other words, add up the value of all the money changing hands between businesses and consumers, and you have our GDP.
The GDP rose 0.2 per cent in the quarter, the second quarter in a row. In annual terms, it is growing at a rate less than 1 per cent per annum.
If the Australian population is growing by 2.5 per cent which it is, and everyone spends the same amount they spent this time last year, the GDP ought to be growing at the same rate (2.5 per cent).
Instead, it grew by less than 1 per cent. What this means is that consumers and businesses have cut back on their spending, significantly.
While it’s not the only thing the Reserve Bank of Australia looks at when determining what they do with interest rates, it tips the scales in favour of those barracking for rate reductions.
The focus to this point, and rightly so, has been on inflation, with the Reserve Bank noting that it won’t drop interest rates until inflation is sitting between 2 and 3 per cent.
At the end of January, the inflation rate was down to 3.4 per cent. This is well down from a high of 8.4 per cent in December 2022.
Good news for the barrackers, but still above the Reserve Bank’s target rate of 2.5 per cent.
Since the beginning of this year, we have seen the unemployment rate jump above 4 per cent for the first time in two years. Another good number for the barrackers.
We’ve also seen wage growth come in at 4.2 per cent year-on-year, the highest rate in nearly 15 years. Not a good number for the barrackers and one that would make the RBA nervous.
While we should always be taking a long-term view on our investment decisions with the knowledge that rates will cycle up and down over time, this is a milestone.
It’s almost impossible to see rates increasing from here. It’s almost inevitable that rates will drop in the second half of this year.
And that’s a little concerning. House prices are running at 1 to 2 per cent per month around Australia. We’re going nowhere near building the 1 million homes we need to be building.
It’s going to be like throwing gasoline on a fire. We need to be doing what we can to put ourselves in a position where that fire helps, rather than hinders, our cause.
Menu
