Quarterly Economic Overview: July – September 2023

Australia has witnessed a surprising rise in its annual inflation rate, intensifying the strain on the Reserve Bank to elevate interest rates. This has sparked concerns of a possible recession looming over Australia in the coming months.

Contributing Factors to the Rise

Data reveals that by August, the yearly inflation rate hit 5.2 per cent, a rise from 4.9 per cent observed up to July. This leap can be attributed to increased prices in petrol, financial services, and labour expenditures, especially after the wage boost of 5.75 per cent was given to about 2.4 million Aussies in July.

Several experts posit that the recent wage growth, paired with the Federal Government’s ambition to cut down unemployment rates beneath their all-time lows and introduce more union-supportive workplace laws, may further amplify wage rates.

Concerns of Stagflation

A combination of possible wage inflations, sluggish productivity enhancements, and sustained inflation could potentially push Australia back into the bleak economic climate reminiscent of the 1970s, potentially causing stagflation.

The Global Oil Situation

The surge in petrol prices is particularly alarming due to its widespread ripple effect, escalating production costs nationwide and hence raising the living costs for every Australian. Internationally, the decision by Russia and Saudi Arabia to curtail oil production, aiming to increase prices, casts a shadow over the world economy. This move elevates concerns regarding escalating energy expenses across the board.

Global Economic Pressures

In the global context, the US Treasury 10-year bond yields soared past 4.5 per cent in the previous month, marking its zenith since the 2007 global crisis. This surge is driven by increasing anxiety that persistent inflation might be the new norm for the coming years. Alongside this, the evident slowdown in China’s colossal economy is stoking apprehensions globally. Speculations are rife that the US might be on the brink of a recession by next year, with other developed nations likely to trail suit.

Housing Market Dynamics

Earlier hopes that the Reserve Bank was on track to curtail inflation have been dashed with this recent inflationary surge and a shift in global interest rates. This scenario places the Reserve Bank in a position where they may reconsider elevating local rates once more.

While the widely discussed fixed-rate mortgage cliff appears to have been sidestepped, tensions are arising in the real estate sector. Data from Core Logic indicates a rise in the number of homes sold at a nominal loss, owned for a short span of two years or fewer, escalating from a mere 2.7% to 9.7% in the June quarter.

Shifting Population Dynamics

An emerging trend suggests individuals who relocated to regional areas during the pandemic are now selling off and gradually gravitating back to urban locales. The figures show that resales within two years of purchase accounted for 11.1% of all regional resales, a noticeable jump from the decade’s average of 7.2% annually.

A Silver Lining for Investors

On a brighter note, investors can find solace in substantial returns from major Australian listed companies. They shelled out an impressive $21.7 billion in the final week of September via enhanced dividend payouts. Notably, BHP dished out $6.34 billion through a $1.25 per share dividend, Fortesque Metal dispensed $3 billion with a $1 per share dividend, and following a record profit, the Commonwealth Bank of Australia distributed $4 billion via a $2.40 per share dividend.