Quarterly newsletter, June 2023

One foot on the accelerator, one on the brake

Consumer inflation slowed to a 138 month low in May of 5.6% (annualised), leading many commentators to express hope that further interest rate rises may be kept in check. In pausing their rise cycle for June and July, the Reserve Bank referenced the moderating inflation outlook. To be clear though, it is widely believed that while we are near the top of the interest rate rise cycle, inflation, even at its current moderated level is still too high. House prices, rental costs, building prices and food inflation have remained stubbornly high, while wage rises are now coming through and energy price increases are yet to come.

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Our fear is that a higher than acceptable level of inflation will become entrenched and require rates to stay high (higher than at present) for a long period of time.

Adding fuel to our concern is the massive government spending at State and Federal level on ‘construction projects’ amongst other initiatives. On construction projects alone, currently the total committed is about $360billion of extra spending over 4 years — all borrowed money. Governments have their foot on the accelerator while the Reserve Bank has its foot on the brake. It is extraordinary stuff. Persistent inflation will make us all poorer.

With unemployment remaining resilient at 3.6% and retail sales rising in May, it is increasingly probable that the RBA will have to tip the economy into a recession to tame inflation, such is it’s stubbornness. Keeping in mind that investment markets tend to look forward, the local share market appears to be pricing in this possibility. Looking to the medium term, inflation will pass and markets will resume their upward trajectory.

Returns for the full Financial Year (12 months)

  • All Ordinaries: 7401, up 654 points or +9.69%
  • Listed Property Accumulation Index 57662, up 4321 or 8.1%
  • 90 Day Bank Bills 4.35%, up 2.54%
  • AUD vs U.S. Dollar 66.65c, down 2.49 cents or down 3.60%
  • UK FTSE 100, 7531 points, up 361 points or 5.03%
  • Dow Jones Industrial Avg, 34407 points, up 3632 points or 11.81%

Guardian Investments Pty Ltd ABN 18 608 506 261 is a Corporate Authorised Representative of Guardian Associates Pty Ltd AFSL 238281. This page reproduces commentary published in June 2023 and is general advice only. It has not been tailored to your objectives, financial situation or needs, and the figures were current at the time of writing. Past performance is not a reliable guide to future returns. Seek personal financial advice before acting on it.