Kicking inflation goals + stock of the week

Hi everyone,

Happy Friday and good luck to all those who have a team in the AFL and NRL Grand Finals.

Economically we are kicking a few goals when it comes to inflation. This week’s monthly Consumer Price Index for August was in line with economist forecasts and steady at 5.6 per cent – still well above the Reserve Bank’s 2-3 per cent target band – but there are some good signs when you look at the detail.

In fact, the vast majority of economists now believe the RBA will keep rates on hold again next month. Over the last four months the average annualised inflation rate was 3.9 per cent and has been 3-4 per cent for the last five months.

But remember that the 5.6 per cent August result excludes volatile items. So let’s go through the details of the key individual cost areas of inflation and some of the trends.

• The largest contributor to inflation in August was understandably petrol prices. Rising global oil prices above $US90 a barrel and a falling Australian dollar has been a double whammy for fuel prices. As a result fuel rose 9.1 per cent in August.

• Food, alcohol, and housing costs were the other big inflation drivers. Restaurant meals rose by 2 per cent over the quarter and takeaway and fast foods rose by 2.1 per cent. The Fair Work Commission’s 5.75 per cent minimum wage increase would have played into this, even though food prices would have fallen.

• Fruit costs dropped 2.9 per cent for the month and vegetables dropped 0.1 per cent. Improved growing conditions have increased supply and led to lower prices. Prices of lamb continued to decline, while other meat and seafood prices rose further in the month.

• There was a 2.4 per cent increase in beer prices, with smaller increases for wine and spirits. An increase in the alcohol excise from indexation contributed to the rise.

• The housing group of the CPI basket (which accounts for just over one fifth of the CPI basket) was driven by a 0.7 per cent rise in rents for the month. Rents are now 7.8 per cent higher over the year.

• The costs of building new houses continued to ease to an annual 7.8 per cent – the lowest since August 2021.

• Electricity inflation costs fell by 1.3 per cent because of the Government’s energy rebates. Government rebates are only delaying the 20 per cent increase in electricity prices.

• Travel prices fell by 3.9 per cent in August, well down on the 17.7 per cent in June. Domestic airfares fell in August owing to the lack of school holidays, which happen in September. Travel price declines in the month subtracted around 0.2 percentage points from inflation.

• Insurance prices rose by 2.8 per cent for the quarter; over the year, insurance prices are now 14.7 per cent higher.

• Car fees (rego, licence and parking fees plus tolls) rose by 3.2 per cent over the quarter.

• Even though telecommunications prices have fallen by nearly 30 per cent since 2013, they increased 0.5 per cent in July and 1.7 per cent in August – remember, Telstra lifted mobile prices 7.5 per cent on 1 July because of “inflation”.

Inflation heading in right direction… but what about consumers?

With inflation going okay, what about the other RBA concern: Australian consumers? According to yesterday’s retail sales data, Aussies are staying in the bunker and not spending up big. Which is exactly what the RB A wants.

Retail trade rose 0.2 per cent in August, up just 1.5 per cent over the year despite inflation being above 5 per cent and a huge rise in population because of migration. It is the slowest trend in retail sales since 1982.

We seem to be cutting back on big ticket items for the house but spending on experiences/rewards like eating out. Spending on cafés, restaurants and takeaway rose 8 per cent over the year, followed by clothing and sports goods (inspired by the FIFA Women’s World Cup!).

But household goods spending was 0.4 per cent lower in the month and 6.6 per cent down for the year. Food retailing, which accounts for close to 40 per cent of total retail sales, fell 0.3 per cent.

And the strong job market is showing signs of weakening

After inflation and consumer spending, the third concern for the RBA when assessing interest rates is the strong job market pushing up wages and feeding into inflation.

Unemployment is still low, but job vacancies fell by 8.9 per cent over the three months to August – the fifth consecutive quarterly decline in the number of job vacancies. Since the peak in May 2022, where there were 476,900 job vacancies (more than the number of people officially unemployed), there has been a 22 per cent decline, or an 86,500 reduction in vacant jobs.

The quarterly movements in job vacancies varies. There are lots of jobs on offer in retail trade (up 19.6 per cent for the quarter), arts & recreation services (+12.3 per cent), and manufacturing (+11.1 per cent).

In contrast, there were very large declines in financial & insurance services ( 15.7 per cent), construction ( 13 per cent), other services ( 11.8 per cent), admin & support services ( 11.5 per cent) and transport, postal & warehousing ( 9.7 per cent).

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Time to check your private health insurance premiums

This Sunday some of the nation’s biggest health funds, including Bupa, NIB, GMHBA, Qantas and Frank, will be lifting their premiums. So, it’s important you get onto it now to make sure you have the best deal.

Libby checked our cover this week through the Compare The Market (I’m CTM’s economic director) comparison site and found our fund (Australian Unity) wasn’t lifting premiums until next April and remained the best for us. The next best was an extra $60 a month… there was one which would charge us an extra $180 a month.

From 1 October, most health funds will increase their premiums by an industry average of 2.9 per cent, but the exact percentage increase varies between funds and individual policies. The increase will mean that some Australians will be forking out as much as $170 a year more than they currently are for cover.

Around 4.1 million Australians with Bupa, 651,000 with NIB (including Qantas) and 370,000 customers under the GMHBA umbrella (including Frank) will soon receive a notification from their health fund, detailing their premium increase if their policy is impacted.

One Compare the Market customer with a Qantas Gold Complete Hospital Plan with $750 excess received a letter explaining that their policy will increase by just $2.75 a month ($33) a year. However, another customer with a Bupa Silver Plus Prime $500 Excess plan will see their monthly premium rise by $14.44 a month ($173.28 a year).

This just shows that your health insurance premiums are determined by many different factors, such as your health fund, which policy you hold, where you live, your level of cover and whether you hold a couples, family or single policy. That means the average increase varies between funds, so now is a good time to ensure you’re getting the most value from your policy.

If your circumstances and health needs have changed, confirm you’re on the right policy to suit your needs. You may be able to save money by switching providers for similar coverage or by changing from a more comprehensive policy to a reduced level of cover that still caters to your health needs and requirements. We also know that there’s still pressure on the public system, so maintaining a private hospital policy is a key way to ensure you receive inpatient hospital treatment when you need it. That’s because you can avoid the public waiting list by seeking treatment in a private hospital.

Health funds want your business and there are a number of attractive perks, offers and rewards available for new customers at the moment. Some are offering several weeks for free, while others are waiving some waiting periods, to help sweeten the deal. You may even be able to access exclusive wellbeing and reward programs.

Just be mindful that free periods, perks and rewards are usually available for a limited time on eligible policies, so ensure that you’re factoring this in when weighing up your options.

Compare The Market offers these tips when reviewing your private health insurance:

Cheaper doesn’t always mean you’ll save

While there are many policies available and different levels of hospital insurance tiers, you’ll usually receive fewer inclusions if you opt for a lower level of cover. As such, choosing a level of cover that caters to your health needs is vital.

Don’t pay for what you don’t need

While comprehensive policies have the most inclusions, it comes at the price of higher premiums, and you may be paying for inclusions you don’t require. If your health circumstances have changed, you may be able to switch to a lower hospital insurance tier that still includes everything that’s important to you.

You won’t need to re-serve waiting periods

If you switch policies, your new fund will recognise any waiting periods you’ve already served on the services you held previously. However, you’ll still need to wait for any new or upgraded services and benefits.

Read the terms and conditions before switching or taking out a new policy and ensure you’ve read your policy brochure carefully. Be aware of any inclusions or exclusions, as well as any waiting periods, excess amounts and more, as these can vary between funds.

Perth is now leading the property pack

According to real estate giant Ray White, house and unit values are growing at the fastest rate since July last year… and Perth led the capital cities over the last month. Australian house prices increased by 6.1 per cent while units increased by 4.3 per cent over the past 12 months.

Perth house values rose 8.6 per cent, while Brisbane and Adelaide had the strongest increases for units – by 6.8 per cent and 6.9 per cent respectively.

While growth continues, the rate of monthly change slowed marginally in September compared to the previous month. While Perth houses continue to show the largest increases year-on-year, they saw a slight drop in September of 0.5 per cent. Adelaide units, also a very strong year-on-year performer, saw a decline during the month of 0.4 per cent.

Ray White listings authorities (the point at which a vendor signs to a Ray White agent but the property is not yet advertised) pulled back in Sydney and Melbourne in September relative to August. If this trend continues, and is followed by other states, it is likely that this will be a contributor to continued price growth, alongside ongoing strong population growth and low housing supply.

Stock of the Week: Washington H Soul Pattinson

Washington H Soul Pattinson is a staple of many share portfolios. One of the oldest companies listed on the stock exchange, it is no longer related to the chemist shops but is regarded as one of the premier listed investment companies.

About half the portfolio consists of investments in listed companies with the rest spread across unlisted companies, fixed interest and about $900 million in cash. Of its listed investments, building materials and investment group Brickworks, coal giant New Hope Group, telco TPG Telecom and Aeris Resources are the most significant.

A year ago the company said it was going into defensive mode by lifting its cash holdings in anticipation of a major pullback in the share market.

That pullback didn’t occur but, even so, yesterday it reported a strong annual earnings result and lifted the dividend payout to shareholders after its share price has risen 25 per cent over the last year.

A great result… but its share price dropped 6 per cent after the announcement.

Josh Barker from Maqro and Grady Wulff from Bell Direct discussed the situation on my share investment program, The Call (midday weekdays on www.ausbiz.com.au) and felt it may have been impacted by Brickworks announcing its results and warning of higher cost pressures. Brickworks share price was down 9 per cent at one stage yesterday.

Josh and Grady both agreed Soul Patts is a stellar performer on the market with great management and strong dividends. Both also felt the pullback in share price was a great buying opportunity.

And for full disclosure Libby and I have a small Soul Patts investment as part of our SMSF.