Fight the rising cost of living + state of the economy

Hi everyone,

Happy New Year… especially to those who are back to work and particularly to the staff at the Australian Bureau of Statistics who are back with a bang after three weeks off. The flow of economic data this week is going to have a major influence on the 2024 economic outlook.

In the raft of data this week the big focus has been squarely on inflation. Just remember that all this week’s data is for the month of November, so it’s a little in the past.

Remember the October monthly CPI actually fell, but analysts warned it was because mostly goods inflation was measured and not much of the stickier services inflation, which has been the worry for the Reserve Bank.

This week’s November monthly CPI included more of the services and came in at 0.3 per cent for the month and 4.3 per cent annually – down from 4.9 per cent in October. This continues the downward trend and is another sign that interest rates have peaked. The question is whether this trend will go below 4 per cent quickly and not just stagnate around this level.

I’ve been saying for a while that the December quarter CPI figure on 31 January will be the most important in years… and I still believe that. The next RBA meeting on rates is in February. At the moment, there is no reason for any more hikes.

In November the price of travel and accommodation (up 2.7 per cent), gas and household fuels (up 2.3 per cent), fruit and vegetables (up 2.1 per cent) and non-alcoholic beverages (up 1.4 per cent) rose the most.

On the flipside, the prices of games and toys (down 2.4 per cent), clothing and footwear (down 1.7 per cent), recreational equipment (down 1 per cent), meat and seafood (down 0.9 per cent), petrol (down 0.5 per cent) and alcoholic beverages (down 0.4 per cent) fell by the most.

Rents rebounded by 0.7 per cent and are up 7.1 per cent for the year. Electricity prices rose 0.4 per cent to be up 10.7 per cent over the year, while gas and other household fuel prices rose 12.9 per cent over 12 months.

Natural disasters continue to push insurance costs higher by 16.3 per cent in the year to November.

This morning the eagerly awaited US CPI figure came in at the highest in three months at 3.4 per cent annually. This means there won’t be any US rate cuts in the near future as inflation is not coming down as quickly as some in the market were expecting. The US sharemarket wobbled as a result but managed to climb back by the end of the trading session.

The other highlights this week from our Bureau of Stats catch-up data dump were retail sales and building approvals.

Retail sales surge

Retail sales for November surged 2 per cent (economists had predicted 1.2 per cent), which was the biggest jump in 2 years. It’s due to the aggressive pricing from the Black Friday and Cyber Monday sales.

The Bureau of Statistics said, “The strong rise suggests that consumers held back on discretionary spending in October to take advantage of discounts in November. Shoppers may have also brought forward some Christmas spending that would usually happen in December.”

History suggests that increases during the Black Friday sale events are usually followed by declines in December, despite Christmas and Boxing Day sales.

Perspective is always important. As I’ve pointed out before, retail sales are positive because of the 500,000 new migrant customers last year. Take that away and the yellow line on this graph shows how retail sales have collapsed on a like-for-like basis.

Low building approvals

The very volatile building approvals rate rose 1.6 per cent in November but are still the lowest in 10½ years. So because of the lack of new homes being built, tight rental conditions are likely to continue together with upward pressure on home prices.

Federal Government still spending up big

While average Australian households are tightening their belts and being squeezed by inflation and higher interest rates, the Federal Government is still spending up big time.

As I’ve shown previously, this Government is one of the highest taxing in history due to the huge increase in personal income tax we’re all paying after wage rises pushed us into higher tax brackets. The Government says they are using this windfall for “budget and fiscal repair,” which is economic speak for “pay down debt and recoup COVID stimulus payments”.

But that argument falls down when you look at this graph, which shows Government spending is still at record levels. So, the Government is raking in the tax dollars at record levels… and spending it at record levels.

Property still slowing, but small capital cities continue to surge

CoreLogic’s national Home Value Index (HVI) rose 8.1 per cent in 2023, a significant turnaround from the 4.9 per cent drop in 2022, but well below the 24.5 per cent surge in 2021. 

On the surface that looks like a stellar result… and it is. But going in to 2024, December’s 0.4 per cent rise was the smallest monthly gain for the year. Monthly growth peaked with May’s 1.3 per cent and since then interest rate hikes, inflation concerns and affordability issues has seen the pace of growth slow considerably, particularly in Sydney and Melbourne.

National figures can always be a bit misleading because we have so many different property markets across the country. For example, last year Perth house values jumped 15.2 per cent while regional Victoria dropped 1.6 per cent in value.

Dwelling values have been rising at more than 1 per cent each month on average across Perth, Adelaide and Brisbane since May, while in Melbourne and Sydney the pace of growth has slowed sharply since the June rate hike.  Melbourne values declined through November and December while Sydney home values are stabilising with a monthly growth rate of just 0.2 per cent in the final two months of the year.  The smaller capital cities have been soft through most of the year, with Hobart (-0.8 per cent) and Darwin (-0.1 per cent) recording an annual decline in values in 2023.

According to CoreLogic, five of the eight capitals are still recording home values below record highs. At the end of the year, Sydney values remained 2.1 per cent below their January 2022 peak, Melbourne values were 4.1 per cent below their March 2022 peak, ACT values are still 6.3 per cent below record highs and Hobart values are down 11.2 per cent. 

And property history has been made as a result of difference in growth between capital cities. For the first time ever Brisbane property has a higher median value than Melbourne. That is pretty extraordinary. It’s now cheaper to live in Melbourne than Brisbane!

And Adelaide is catching up fast.

Despite all the concerns about home affordability for first home buyers excluding them from the property market, I was interested in this chart showing the average age of a first home buyer has only risen to 35.

Back in 1995 the average age of a first home buyer was 32. I instinctively thought it would have risen much higher than that.

Your new year plan to fight back against the rising cost of living

When you look back on 2023 in ten years' time, the one thing you might remember is just how expensive everything from petrol to power and even chips and chocolate got.

That’s why we need to make 2024 the year of the financial fightback.

Yes, some price hikes will be hard to avoid. But if you’re proactive and spend 20 minutes tackling a different bill each day of the next week, I reckon you’ll have set yourself up for better budgeting this year.

The best part? You can tackle most of these expenses by doing a quick comparison, shooting off an email, or making a call.

They’re so easy you can get many of them done on the train to work or between ads on the telly. 

Fight back against price hikes

We’re all getting used to prices going up but having a relaxed attitude won’t do you any favours.

Survey data from comparison platform Compare the Market (where I’m Economic Director) shows 72.1 per cent of Aussies haven’t switched energy plans for over a year.

That’s surprising when average prices for families on so-called “standing offers” in New South Wales increased between $315 and $435 last July.

There are often much better offers on the market for those willing to sniff them out.

And the savings are greater the more bills you tackle. After you’ve compared energy plans, move on to your insurances.

A Victorian couple with a 2019 Volkswagen Tiguan saved $762 when they compared their car premium in December.

Supercharge your super

These days most employers offer salary sacrificing so you can put up to $27,500 of your pre-tax income to make extra contributions to your super.

Any contributions you make will be taxed at 15 per cent - that’s probably a lot better than the marginal rate you’ll otherwise pay in tax.

Make your money work harder

Interest rates are up - that means we can’t afford to let our hard-earned savings languish. 

That could mean paying off any high-interest debts, putting your money in a top-rated savings account or storing it in an offset account to reduce the interest on your mortgage.

Compare The Market crunched the numbers and found that having just $25,000 in an offset account for a $500,000 loan with an interest rate of 5.84 per cent could reduce your loan term by two years and 11 months and save more than $100,000 in interest over the life of the loan.

Do away with upgrades

We’ve all been sucked into the race to have the latest and greatest devices. Next time your phone plan is up, ask yourself, ‘do I really need a new phone?’

Sticking with an old device and switching to a cheaper phone plan could save you hundreds of dollars a year.

For example, keeping your old phone and choosing a bare-bones $30 data plan, instead of choosing a new phone with a $70 data and payment plan, will save you $480 over a year.

Find the hidden rewards

Major supermarkets allow you to “boost” your points within apps to maximise points that can be redeemed for store credit.

Meanwhile, insurers and energy retailers often have exclusive deals and discounts to sweeten the deal for members.

Having Woolworths Everyday Car Insurance, for example, gets you 10 per cent off one grocery shop every month. If you use the discount on a grocery shop of $160 each month you’ll save $192 over a year.

And make sure that one grocery shop a month is a big one to make the best savings.

Fuel for thought

Use fuel comparison services to find cheaper petrol on your way to work or when you drop the kids off at school.

There can be huge discrepancies between fuel stations at different points in the fuel cycle.

One Compare the Market employee saved $291.88 in a year by using the Simples app to help her track down cheaper prices to fill her Kia Rondo.

That money you save might even be enough to cover your next car service!

I hope some of these tips help you save smarter this year, to help you reach your money goals and grow your budget for the stuff that really matters.

Australian sharemarket finishes 2024 close to a record high

Investing for the long term is all about getting the trend right. While the Australian sharemarket finished 2023 at near a record high (and who would have predicted that at the start of the year… or even as recently as October), this chart from one of my favourite analysts Carl Capolingua shows it is part of a strong, long-term trend.

But within those long-term trends there are plenty of short-term investment bubbles which come and go over time. In the recent couple of years one such bubble has been lithium whose commodity price reached stellar levels based on the future demand for electric vehicles (EV) and the need for lithium in producing their batteries.

The lithium theme ignited the share price of most Australian lithium producers and explorers. Values reached ridiculous levels even for explorers who were just sitting on deposits and weren’t even close to developing a mine to dig the stuff out of the ground and earn revenue.

It’s a great example of how commodities move in cycles up and down. So as an investor, knowing where you are in the cycle is critical.

You see, when a commodity is “hot” it attracts even more suppliers who are chasing those higher prices. More explorers find more deposits and more companies open mines. In the end, there is an oversupply of the commodity and prices fall.

It happens time and time again.

Look at this lithium price commodity chart and you’ll see what I mean - a classic commodity cycle.

The question then becomes who can mine the commodity at the lower price and still make a profit.

Last week the sharemarket was shocked when one of the previous investment darlings of the lithium sector, Core Lithium, said they were pausing plans to develop their lithium mine in the Northern Territory because their cost of production was higher than the price they could sell it for.

The news rocked investor confidence in lithium stocks and brought their focus back to a traditional investment principle: being able to produce something at a profit.

This data from a story in The Australian newspaper underlines the point. Investment themes are one thing but reality is bringing the product to market.

Core Lithium’s cost of production was a lot higher than its competitors who would have a competitive edge as the cycle turned.

Which brings me to the current hot commodity theme: uranium. This week the share price of the market’s favourite uranium stocks (Paladin, Boss, Deep Yellow) reached all-time highs.

The theme is that if countries have any hope of reaching their climate change targets, uranium will be needed in nuclear power stations to produce base load electricity and replace coal. As a result, demand for uranium will surge. A bit like what lithium would do because of EVs.

This is the chart for the uranium price. Looks familiar? No wonder the value of uranium miners and explorers are at all-time highs. And as the chart shows, it has happened before, 12 years ago.

Look, I have no idea whether the world will build more nuclear power stations but, here’s the thing, there is a lot of uranium around. The world’s biggest uranium mine is BHP’s Olympic Dam in South Australia which is in mothballs.

The danger is that if there is a big pick up the demand, there is plenty of supply which can be brought out of mothballs to meet it.

Beware the commodity cycle.