The good and the bad of the latest inflation number

Hi everyone,

Well, this week has been nuts. Thank you to those who sent through such lovely notes following my decision to leave Sunrise as co-host. It’s a big decision, but the timing seems right. After almost 21 years and 16,000 hours of live television I’ll get a bit more flexibility in my life to focus on my family businesses, some of the board/advisory roles being offered and my footy club.

Libby and I have a big bucket list we also want to tick off.

But you’ll still see me pop up on Sunrise and the Seven Network covering big financial and business news. As you know, I’ve always been a finance nerd and love it. Just as I love writing this newsletter, which will, of course, continue each and every Friday.

I leave the hosting desk of Sunrise with a huge amount of pride and gratitude. I’ll miss it enormously but I’m excited about what’s ahead.

The good and the bad of the latest inflation number

The future of interest rates in this country will be determined by how quickly we tame inflation. Ahead of next Tuesday’s Reserve Bank meeting, this week’s inflation figure was hotly anticipated. And it was both good and bad news.

First the good news. Consumer prices rose by 0.3 per cent in April on a seasonally adjusted basis. That is a step down on the monthly pace of growth from February (+0.6 per cent) and March (+0.5 per cent). On this measure, the inflationary spiral is cooling.

But the media commentary focused on the bad news of the unadjusted annual rate of inflation, rising from 6.3 percent to 6.8 per cent. That was stronger than market expectations which were looking for just a slight uptick to 6.4 per cent.

An increase was expected because of the halving of the fuel excise tax in April last year; price increases across holiday travel and accommodation; and rents being stronger than expected.

Annual inflation excluding volatile items (fruit and veg, and petrol) eased from 6.9 to 6.8 per cent, while inflation excluding volatile items and travel fell from 6.9 to 6.5 per cent.

So next Tuesday’s rate decision by the RBA will centre around how they slice and dice the figures. Whether they look at the good trend down of the underlying rate of inflation, or they just focus on the rising headline rate.

Traditionally they look at underlying inflation, but the rhetoric from RBA executives has been fairly aggressive around future rate rises.

That’s why Tuesday’s rate decision is finely balanced between a pause and a rise.

You should now be able to get over 5 per cent on savings

A total of five banks now offer at least one ongoing savings rate above 5 per cent, as competition in the savings sector continues to heat up.

The latest is Move Bank which increased its Growth Saver account to a maximum rate of 5.25 per cent – the equal-highest ongoing savings rate in the market for all adults, alongside ING’s Savings Maximiser.

Bank of Queensland offers a higher ongoing savings rate at 5.30 per cent, however it is reserved for young adults aged between 14 and 35.

The RateCity.com.au database shows:

• Eight banks have at least one ongoing savings rate of 5 per cent or higher (excludes kids accounts).

• Five of these banks have ongoing savings rates over 5 per cent.

• 4.5 per cent is the highest big four bank ongoing savings rate for all adults, offered by Westpac, NAB and ANZ. (Note: Westpac has a young adults account at 5 per cent).

Current highest ongoing savings rates (excludes kids accounts)

Big four bank savings account rates

Data out from the Australian Prudential Regulation Authority (APRA) shows Australians’ money in the bank hit yet another record high in April, with a total of $1.37 trillion in household deposits.

This includes funds in savings accounts, transaction accounts and offset accounts.

APRA Monthly Banking Statistics: deposits from households

Housing supply starting to dry up

There are currently a record number of new houses being built but the pipeline is starting to dry up. As I’ve talked about before, there is a huge housing shortage brewing, which will be caused by the big increase in immigration over the next few years.

As you know, you just can’t pluck new houses out of the air. It can take years to get plans done, council approval and then build the property. Then there’s the lack of materials and the crisis from building companies going out of business because inflation is playing havoc with their fixed price contracts.

The building market is so finely balanced at the moment and latest building approvals figures out this week are not going to help ease the crisis.

April’s building approvals numbers were very weak, with the total number of building approvals falling by 8.1 per cent in April – the market was expecting a 2 per cent increase. The March figures were also downwardly revised from 0.1 per cent to 1 per cent.

The total number of approvals in April was just 11,600, the lowest monthly number since April 2012. The peak was 22k in April 2016.

New detached housing approvals fell by 3.6 per cent and multi unit approvals fell by 16.9 per cent. Over the past year building approvals are now down by 24.1 per cent.

By state there were large falls in April in Qld ( 22.8 per cent) and Vic ( 18.6 per cent), and smaller falls in WA ( 5.8 per cent). Approvals in NSW (+12.5 per cent), SA (+19.8 per cent) and Tas (+3.5 per cent) all rose. But over the year falls have been recorded in every capital city with the largest in Vic ( 39.5 per cent) and the lowest in WA ( 14.3 per cent) and NSW ( 14.6 per cent).

Tight housing supply is underpinning the strong bounce-back in property values

As I often mention, property is driven by demand and supply. We’ve just seen that the supply pipeline of new housing stock is looking weak, but this is being accentuated by a drop-off in listings of existing housing.

Across the capitals, Sydney, Canberra and Melbourne listings are still well down on the same month last year. Brisbane, Darwin and Perth again saw more moderate losses in listings, with Hobart now also seeing losses. Adelaide also sees losses, though far smaller at 0.5 per cent.

The result is a strong bounce-back in property prices with many capital cities back to record levels.

The timing of this recovery is moving even quicker than expected. Although house prices took a bit of a stumble in April, prices are back on the rise in May. Brisbane, Perth, Adelaide and Darwin are now above their 2022 peaks. All other cities are expected to follow over the next six months.

First home buyers back in a property squeeze

Rising property prices are good news for existing homeowners, particularly buyers over recent years caught by rate rises increasing repayments and property values falling. At least the risk of being caught with negative equity (a loan worth more than the property) is easing for them.

For new homeowners the rising interest rates are cutting their capacity to borrow at a time when property values are surging and getting away from them. And all of us parents of adult children feel for their predicament.

So I was interested to read in Finder's Parenting Report 2023, parents are planning to give their children $33,278 on average to put towards a first home deposit.

That’s about a third of the average first home buyer deposit ($96,274) based on the average first home buyer loan of $481,368 in March 2023.

Parents in Victoria plan to extend the most financial help to their adult children to buy a home at an average of $52,716, followed closely by parents in South Australia ($44,656) and New South Wales ($40,191).

However, not everyone is ready to splash out. More than 1 in 2 (51 per cent) say they would give $1,000 or less.

While everyone wants to help their kids, just be careful you don’t jeopardise your own financial situation by being overly generous splashing the cash. Remember, our kids have a much longer earning capacity ahead of them to build cash reserves than we do.

As I’ve written about before, there are other ways to help such as:

• Go guarantor for your child’s home loan… but make sure the guarantee is limited and not open ended and your child understands their responsibilities to make repayments on time. Get out of the guarantee as quickly as possible when sufficient equity is reached.

• Be a co-investor in the property… this has to be well-documented with clear responsibilities and a plan on how you might each buy the other one out if needed.