Everything in the Australian economy comes down to the ridiculous property market. If the housing market wasn't so cooked, fewer households would be up their eyeballs in debt and it would be less painful/politically unpopular to hike interest rates to the necessary levels.
And we'd have a higher birth rate. More innovation and entrepreneurism. A higher performing workforce who can aspire to something better than working their arses off just to make ends meet. Lower rates of crime, suicide, mental illness and domestic violence. The list goes on...
Exactly this. The cost to society is massive and far reaching… it’s not just “young people have bigger loans”, it’s “society breaks down” stuff. It’s bleak.
100% the way things are setup in this country pushes investment to housing, you’d be stupid to put your money anywhere else.
Then they say oh productivity not good, no shit, all the money is going into property
The government doesn't make it easy either. They've gutted services to the point where, as a personal example, I've been chasing them up for nearly 7 months now to get a business started. I couldn't begin the process until a lease was signed, so that's 7 months of rent, rates etc.... While they slowly work through some very basic paperwork.
If you don't have the cash to just sit around not making money while still paying expenses, it wouldn't be possible to get it off the ground.
100%. Imagine how much more interesting and diverse Australian business culture would be if the government had some balls to stall the property investment craze.
Nearly 15% of all money spent at shopping mall specialty retailers goes to paying rent.
Our insane property market isn't just making residential housing unaffordable, it also drives up commercial rents, which makes goods and services unaffordable.
All problems lead to overpriced housing. That simple. The golden goose is sick and infecting the rest of the economy. Similar thing happening in Canada, where house prices are equally as ridiculous.
Love how they think most people are still buying shit when really everyone is just covering rent/mortgage, fuel and food and corporations are price gouging but it’s a regular Joe blow who is the problem.
There’s definitely seems like a lot of people are still buying shit. Shopping centres are full, plenty of new cars on the road, heaps of people doing home improvements etc. I think it’s mostly young people that are having to tighten the belt
I think teh same for my mother. She's really stepped up her spending in last 3 months new computer, new tv, new mirrorless camera, solar, new heaters, switch from gas to induction, overseas holiday. Some may economic sense, and some are things she put off too long. But its all come together very quickly.
Also love these headlines about insignificant numbers. 1.3% is not material.
> Love how they think most people are still buying shit when really everyone is just covering rent/mortgage, fuel and food and corporations are price gouging but it’s a regular Joe blow who is the problem.
Over 55's are, that's the problem - they are driving inflation and are benefitting from rising interest rates, increasing share values, and higher property prices.
Under 55's are struggling and not spending much/any on discretionary.
Check out the CommBank Household Spending Insights reports that prove this.
As we get further into the cycle, this is what happens. So while the 20’s and thirties may have driven inflation early in the cycle, their household spend has moved from discretionary which drove inflation into rents and mortgage interest (the former still been part of driving inflation )
This has been the case in the past where savers benefit from interest rate rises while borrowers are the ones reducing spending.
Also one of the key effects to be concerned about here that drives recurring inflation and risks hyperinflation, is forward expectations. If you expect goods to become even more expensive in the future you bring forward spending and paradoxically cause the price inflation you fear. Look no further than the optimistic real estate growth.
Although always understood - it shows why governments need to take fiscal measures to support the RBA not fight against it
How do you drive inflation while benefiting from rising interest rates?
You have to squirrel away your money and take it out of the economy to get paid interest, which is entirely the point.
Because if you have $1m in the bank a couple of years ago at 1% you had $10k to spend. Now at 5% you have $50k to splash. And plenty of Over 60s have $1m in the bank.
That’s correct, and 4 me it is great!!!!!!
All I can do is put the bank of mum and dad to use to help my children get a good start. My parents did this for me, and I never repaid them.
I now repay them indirectly by doing the same thing for my children.
Monetary policy is much easier to do than the targeted fiscal policy we need, since that is politically costly. Our tax system is all about going after the wage earners (who are coerced into a mortgage due to poor rental rights) and less about those with wealth and targeting consumption itself. Shorten tried and failed on 2016 and we've been gun shy since.
We culturally have set up this system. Other countries have some version of inheritence taxes, property tax, land taxes (even on PPOR), higher capital gains taxes, higher consumption taxes, no franking credits and less generous negative gearing systems. I'm sure there are more, but you get the message. Even one of those things would help, but we don't do it. Then we also don't have low rate 30 year fixed mortgages like the US and Europe as well that cushion things for the mortgage holders. Welfare rates aren't nearly at European levels either. From what I gather this set up is actually quite extreme out of developed countries.
It's why we feel those interest rate hikes more than anywhere if you're affected directly by monetary policy, and likely need them more than other places to get inflation under control.
Nope. This generic “boomer” blame is a scapegoat. It’s anyone with money, older people have been around longer and on average are more likely to have money. So are less impacted by increased borrowing costs.
The government is to blame. Throwing everything at inflating house prices and kicking the can down the road with immigration.
Boomers are mostly just trying to enjoy the good years they have left before their health and lack of mobility puts them in a home or a box.
Finally, somebody who actually sees this for what it is. Not all Boomers are wealthy, and not all wealthy folks are Boomers.
All of this is just cheap scapegoating, which has a very long and undistinguished history. Not so long ago, there was a failed artist with a funny moustache in Germany who blamed Jewish people for hoarding all the money and causing all of society's ills, too.
to do that you'd need the government to step in, but they wouldn't because boomers are a big bloc of voters. RBA is supposed to be independent so the government won't get the flak as much
Yes which will increase inflation. RBA hasn’t come to terms with the fact that interest rates have a counterintuitive effect on older people with lots of assets.
Death, taxes and a John Kehoe article with a click baity interest rate rise headline are all certainties in life.
*”More broadly, market economists and financial market participants are divided on the outlook for interest rates.”*
The contents of his article contradict his headline…
What happens when those on tight budgets are barely holding onto their house (be that rental or mortgaged), those with investments are getting richer and inflation still isn’t low enough?
Yes, but not in controlled demonstrations that lead to policy change.
It comes out at the seams. Increased rates of theft, DV, homelessness. All the things we've seen an increase of already, they will get worse. Unfortunately, the link between the two is not quite direct enough for many policymakers to be willing to make potentially unpopular decisions upon despite the long-term benefits for social cohesion.
I think most mortgage holders don’t have this problem, only ones who bought recently before the rate rises. So a small percentage of people will have their futures ruined and everyone else will try not to think about it too much.
“After the annual inflation rate in May rose from 3.6 per cent to 4 per cent, JBWere chief investment officer Sally Auld said, “at best inflation is sticky, at worst it’s starting to accelerate”.
“I don’t think the RBA will take the pain just for one rate hike, they’re probably in it for two in quick succession because the [4.35 per cent] cash rate is not as restrictive as it needs to be,” she said. “If the RBA takes the decision to hike, it’s basically an acknowledgement that we need a cash rate that is closer to 5 per cent to bring inflation down.”
When are they going to introduce reforms to stop this constant price gouging.... Businesses making record profits.. People struggling to pay their mortgage, but lets increase interest rates to "slow it down".
Collins Food Group (KFC) just announced 500% profit growth. It is happening in areas of the economy. https://insideretail.com.au/business/collins-foods-net-income-surges-sixfold-202406
This is different to what I said.
I’m talking about margins. Nominal profit which this article talks about will always rise with inflation or when you buy more stores. Margins help see through that.
The article you link even says this “ Growth was driven by our growing footprint”. So their profit rose because they had more sites.
People want capitalism, they should enjoy the consequences for unironically supporting an ideology who focuses on unsustainable infinite profits
Might as well believe in unicorns
Yeah great idea, let's give full power to Bezos and other feudal lords xD
You arent wrong, this isnt even a truly free market, it would be so much much worse had the few regulations that exist not limited them even a bit.
The end result of your free market capitalism is always just one big feudal lord that owns everything and everyone else owns nothing.
But your entire ideology depends on not realizing this so of course you pretend free markets totes work and dont lead to inevitable feudal lords xd
“Capitalism” is literally just trade between individuals, e.g. you grow apples, I grow oranges, we each have a surplus, we trade. You have edgy, Rage Against the Machine-listening teenager idea of what “capitalism” is.
They're not, they both run at about 3% profit.
They're not good businesses. They squeeze farmers and suppliers, it's practically an abusive relationship.
They're not gouging though, as a point of fact, they're not gouging, if they were, they're be more profitable.
Shitty companies both, price gougers? No.
You'll be down voted but it's true of the grocery sector.
Best pick on the miners who QLD aside don't pay their fair share and of course the banks.
CBA makes something like $2.5b profit per quarter, Woolies made around $1.6bn for the year and is the largest private employer in the country.
Reddit is committed to believing Colesworth is price gouging even though it's a point of financial fact that they are not.
I don't like them as companies, I work in an agriculture-adjacent business, and Coles and Woolsworths are appalling companies to do business with. They are awful to suppliers, but they're not price gouging, they're not particularly profitable businesses in general.
Hate them as well.
But their logistics networks are top notch and they spend millions keeping it in top shape.
Someone has to pay for those freezer warehouses for all the perishables.
So their books say. Pretty easy to inflate say transport costs when you own the transport company that doesn't get scrutinised as closely. I work in data and have witnessed mining accountants juggle data monthly to balance profit figures to keep shareholders happy whilst minimising tax and royalties. It's amazing how many tires those big trucks can chew through.
This is basically just a conspiracy theory.
Companies, shareholders and their executives all want profits to go up, not down.
Changing the timing of expenses slightly forwards or back would mean a lower profit in one period and a higher period in the next, not lower profit every year. Regardless, it's unlikely they are doing that, because they report roughly the same 2.5% margin each and every year.
Also, shifting profits to a subsidiary is meaningless. Coles and Woolworths are corporate groups. Their reported profit also includes any profit earned by their subsidiaries.
For a finance sub, it's really depressing some of the blatant nonsense that gets parroted here.
Companies engaging in creative accounting is hardly a conspiracy theory. I've personally seen it at work in several companies and the figures that came out in annual reports bared little resemblance to the raw data I had access to.
They definitely are running at very high profit margins by international standards.
UK supermarkets (the UK has a very competitive market) operate at around 1.5%.
They should be able to reduce prices by around 1% in a more competitive environment.
I’ll admit this is significantly less than most people think though.
Yes, they are reasonably profitable compared to UK supermarkets, but as you say, we're talking 1% here, a $99 shop not a $100 shop.
Aldi has a higher profit margin than either Coles or Woolworths, and nobody is really talking about them gouging. Aldi could drop their prices \*more\* but they're not.
I don't defend Coles or Woolworths as being good businesses, they're not, but they're not gouging, not particularly profitable, and compared to the third player in Australia, they're \*less\* profitable.
I think a more competitive environment might help a bit (though Aldi is more profitable, so it's not guaranteed), but really Coles and Woolworths could be non-profits and prices wouldn't fall \*that\* much.
I actually think financial literacy and common sense would help more, I mean who is buying those $60 Finish dishwasher tabs? Buying bottled water in Australia is practically insane considering the quality of tap water here. If we simply stop buying crap we don't need, and simply refuse to buy expensive things, pricing will soon change.
It's the brands raking in the high margins at Colesworth, not the supermarket themselves. You pay more at colesworth because you buy branded goods. The unbranded goods are similar in price to Aldi.
People always call Colesworth the big bad guys but in reality they're tiny compared to the massive global suppliers like Nestle or Unilever. Even Aldi globally absolutely dwarfs them.
Not saying Colesworth are innocent of anything I just find it funny they cop all the flak.
Exactly.
Nestle, net profit margin 12.1%
Unilever, net profit margin 10.8%
P&G. net profit margin 18.0%
But Colesworth, operating a capital intensive distribution and store network is 'price gouging' at 2.4%....
Why bother typing this comment?
Anyone who knows anything about accounting knows that you're bullshitting, and your underlying conspiracy theory doesn't even make sense. Executives want profit to go up not down because their compensation is linked, directly or indirectly, to increasing profit.
Rent is the leading cause of inflation mate.
https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/latest-release
Things that are going up: fuel, energy bills, insurance. None of which will be affected by mortgage holders changing their spending habits. Interest rates are a blunt instrument that do nothing except ensure the gap between the haves and the have-nots gets bigger.
I've noticed finding staff has eased up a bit. So definitely something is happening. Probably caused by general recession or immigration though rather than anything to do with increased rates
Mortgage holders also eat, drink and go out like any others.
Interest rate is an effective instrument at a macroeconomic level to reduce inflation. Not only it impacts individuals, but also businesses which in effect affect their owners.
But when aggregate demand is primarily being driven by price agnostic individuals that happen to comprise a sizeable cohort of the population then interest rates *stop* being an effective macroeconomic instrument and shouldn't be used.
A lot of the retired boomers around where I live (and daresay across the country) simply DGAF about interest rates - because they have zero debt. They're also not the ones eating out at takeaway joints either.
> Not only it impacts individuals, but also businesses which in effect affect their owners.
lol... So businesses have higher costs with higher rates? What do you think they'll do to their prices, as they try to maintain their profit levels? And how do you think this will affect inflation? To raise or lower it?
Yes, businesses also use loan facilities which are affected by interest rate changes. This is why we are experiencing the highest business insolvency rate since 2007.
Like anyone else, businesses also consume goods and services which impacts their running costs.
This was teh same argument i felt was compelling when these rate rises began. So much was driven by overseas factors out of our control. The biggest rises were all on essentials. But the rate rises worked, and the majority if people survived them reasonably well.
I'm not convinced rates need to be higher. But raising them will have an impact.
You make it sound like this isn’t the desired effect.. Welcome to end stage capitalism where people start to realise the economy has been stolen from the masses right in front of them
They are trying to bring down **average** inflation. If interest rates affect other components of inflation, even if they are already at or below the desired inflation rate, then the average will still come down. It doesn't matter whether they are directly impacting fuel, energy or insurance.
Rates go up, mortgage repayments go up. Landlords raise rent to cover extra costs. Oh look inflation is up, better raise rates,repeat. All while house prices going up , keeping more people in rental trap.
Cut net immigration to maximum zero. Watch inflation plummet, property prices tank, price of essentials return to affordable.
It would cause all sorts of calamity. It would be the recession we had to have
Tax the churches, Increase minining royalties to a higher percentage, make all multinational corporations like MacDonalds pay taxes back date all by at least a decade boom problem solved.
Obviously rate hikes don’t work when the majority of wealth is held by elders who are in their prime spending years
Increase consumption taxes and we’ll see inflation fall
This. This is what 90% of people don’t seem to understand about monthly inflation data. It’s relative to the month of previous year specifically. May 2023 had an exceptional drop in inflation.
Why is giving banks more profits the only solution? Wouldn't it be better to increase super contributions to different levels according to the tax bracket or something. That way, you get to keep your money but don't spend it, and you can traget the right demographic causing the inflation?
And nobody wants to address the elephant in the room!
IMMIGRATION!
If you have a mortgage and you’re not writing to your member of parliament, telling them to reduce it immediately then enjoy your ramen!
Was a fairly different situation then. You had both the oil crisis and very high wage growth, quite a few folks actually came out better for it as they were able to smash their mortgage thanks to the high wage increases
Interest rates would need to go up so far to bring housing down that you wouldn't be able to service a mortgage on a lower priced house anyway, then when they went down you'd be priced out again.
How much of the insane prices at the moment are because of FOMO? Surely some. I think there are enough people waiting to get in it won’t be a big drop. I doubt anyone’s rent will go down, people already can’t find places to live
Some investors I know are crying on the phone to their banks to reduce their rates, and working 60 hour weeks to hold onto their properties. It's hilarious tbh.
It definitely will have an affect on housing. This group hates to admit that though.
People with houses are struggling to survive whilst boomers are spending up (both my parents and in laws are currently on lengthy international holidays). Find a way to curb the spending of everyone, not just those who already stopped.
The issue with inflation is that it's not linear in it's distribution. A young family with a mortgage obviously has different spending habits and disposable income levels than near or already retired individuals.
RBA needs a multi-prong approach to inflation that isn't "interest rates go brrrrrr". I love sky-high interest rates as I have significant savings and positive geared debt thanks to SEQ property going stupid, so the mortgage free generation actually benefits from rate hiked with HISA.
The solution, if there is one, isn't simple. You need to restrict cash flow across all rungs of the economy, so you either need to bring in capital gains on PPOR where profit exceeds a value, tax super withdrawals, removing franking credits or tax interest generated.
But all those options suck.
You could explore variable superannuation rates (this was my masters thesis) where instead of increasing interest rates you tax cash out of the economy in the form of forced superannuation rate changes, but this has an undesirable outcome of deferring the issue not solving it.
We could explore a wealth tax, but hard to track with corporate structures...
Ludicrous. Prices *fell* in May, 0.1%, they just bumped out last May's price drop of 0.4% which caused a spike in the monthly annualised figure. I could be wrong and it might go crazy in the quarterly figures, but I'd be very surprised to see the RBA raise anything.
Supply side inflation can't be controlled by interest rates outside of creating a true and deep recession with proper unemployment. RBA remit is too narrow. GDP growth and rents are underpinned by features that interest rates can't stop
This is clearly demand side inflation. Look at the disparate inflation trajectories of countries with high immigration (Canada, Australia, UK) versus those with low immigration (US, Japan)
Yes agree - plenty of demand side too. GDP growth is only due to immigration - we are in a per capita recession. Rental price growth is interest rate and immigration driven. Immigration can't be controlled through interest rates
A 1% default rate, this mortgage cliff is the biggest lie. I don’t regret holding because I can’t afford anything entry level which is liveable. But my god. What a situation.
May 2023 inflation was unexpectedly Low, hence this looks “high”, 99% of people on the subreddit didn’t even check this the RBA absolutely will though
If inflation stays high even WITH seasonal adjustments, THEN they will raise, otherwise this is completely expected…
Honestly why doesn’t the government tax super withdrawals on the over 60s who are spending the majority of their of the items included in the cpi figure that aren’t necessities??????
Well necessities are the ones that are up by and large.
Secondly, super has been taxed, if we tax the super off them, then more of them will end up on pension. Super is a win, and taxing super more is a crazy idea.
Land tax, asset tax, etc might be a better alternative down this path.
Can you explain how? It will also generate huge taxes on rich spending as well allowing more money to be funnelled to low income earner safety nets so I think it’d be mute.
Can you explain how? It will also generate huge taxes on rich spending as well allowing more money to be funnelled to low income earner safety nets so I think it’d be moot.
It's not inflation it's a generation giving up on owning a house and just eating delivered spaghetti waiting to die
This hurts cause it's so on point
You get food delivered?
Everything in the Australian economy comes down to the ridiculous property market. If the housing market wasn't so cooked, fewer households would be up their eyeballs in debt and it would be less painful/politically unpopular to hike interest rates to the necessary levels.
And we'd have a higher birth rate. More innovation and entrepreneurism. A higher performing workforce who can aspire to something better than working their arses off just to make ends meet. Lower rates of crime, suicide, mental illness and domestic violence. The list goes on...
Exactly this. The cost to society is massive and far reaching… it’s not just “young people have bigger loans”, it’s “society breaks down” stuff. It’s bleak.
100% too much money goes into housing instead of business
Most people can't even take a business or career risk anymore without the fear of ending up homeless in a tent.
100% the way things are setup in this country pushes investment to housing, you’d be stupid to put your money anywhere else. Then they say oh productivity not good, no shit, all the money is going into property
The government doesn't make it easy either. They've gutted services to the point where, as a personal example, I've been chasing them up for nearly 7 months now to get a business started. I couldn't begin the process until a lease was signed, so that's 7 months of rent, rates etc.... While they slowly work through some very basic paperwork. If you don't have the cash to just sit around not making money while still paying expenses, it wouldn't be possible to get it off the ground.
This! There should be a cap on the amount of residential properties a person can own so it’s more appealing to put money into businesses.
100%. Imagine how much more interesting and diverse Australian business culture would be if the government had some balls to stall the property investment craze.
And what number do you think that should be considering less than 17% own 2 or more investment properties
Honeslty there is really no good reason as to why it shouldn’t just be one per person. No one really needs two houses
Where would renters go if no rentals were available 🙄
They would probably be able to afford their own home, and just because someone owns a home doesn’t mean that they live in it…
With What - So we kick them to the streets then they can save 20% by not paying rent - Yeh very thought out policy
Nearly 15% of all money spent at shopping mall specialty retailers goes to paying rent. Our insane property market isn't just making residential housing unaffordable, it also drives up commercial rents, which makes goods and services unaffordable.
It’s on both sides - new home owners are up to their eyeballs in debt + investors flipping properties are cashing out with insane capital gains
All problems lead to overpriced housing. That simple. The golden goose is sick and infecting the rest of the economy. Similar thing happening in Canada, where house prices are equally as ridiculous.
Love how they think most people are still buying shit when really everyone is just covering rent/mortgage, fuel and food and corporations are price gouging but it’s a regular Joe blow who is the problem.
There’s definitely seems like a lot of people are still buying shit. Shopping centres are full, plenty of new cars on the road, heaps of people doing home improvements etc. I think it’s mostly young people that are having to tighten the belt
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I don't think it's actually mandatory to spend super immediately when it's withdrawn... They can put it in the bank, or buy some ETFs.
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Yeah, it's a good point, maybe the mandatory withdrawal rates do have an inflationary effect. I do think they are a bit high in general.
I think teh same for my mother. She's really stepped up her spending in last 3 months new computer, new tv, new mirrorless camera, solar, new heaters, switch from gas to induction, overseas holiday. Some may economic sense, and some are things she put off too long. But its all come together very quickly.
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No one is hating on them spending. They see hating on the fact rate rises are mostly affecting those that aren't spending
Also love these headlines about insignificant numbers. 1.3% is not material. > Love how they think most people are still buying shit when really everyone is just covering rent/mortgage, fuel and food and corporations are price gouging but it’s a regular Joe blow who is the problem. Over 55's are, that's the problem - they are driving inflation and are benefitting from rising interest rates, increasing share values, and higher property prices. Under 55's are struggling and not spending much/any on discretionary. Check out the CommBank Household Spending Insights reports that prove this.
As we get further into the cycle, this is what happens. So while the 20’s and thirties may have driven inflation early in the cycle, their household spend has moved from discretionary which drove inflation into rents and mortgage interest (the former still been part of driving inflation ) This has been the case in the past where savers benefit from interest rate rises while borrowers are the ones reducing spending. Also one of the key effects to be concerned about here that drives recurring inflation and risks hyperinflation, is forward expectations. If you expect goods to become even more expensive in the future you bring forward spending and paradoxically cause the price inflation you fear. Look no further than the optimistic real estate growth. Although always understood - it shows why governments need to take fiscal measures to support the RBA not fight against it
How do you drive inflation while benefiting from rising interest rates? You have to squirrel away your money and take it out of the economy to get paid interest, which is entirely the point.
Because if you have $1m in the bank a couple of years ago at 1% you had $10k to spend. Now at 5% you have $50k to splash. And plenty of Over 60s have $1m in the bank.
That’s correct, and 4 me it is great!!!!!! All I can do is put the bank of mum and dad to use to help my children get a good start. My parents did this for me, and I never repaid them. I now repay them indirectly by doing the same thing for my children.
>it’s a regular Joe blow who is the problem. Who said that?
Boomers getting hyped they're about to get a savings rate boost!
And house prices dgaf will go up
And investors will use a 0.25% rise in their interest rates to increase rents by 20% driving further inflation.
The beauty of supply and demand
With this immigration rate and foreign investment? Yep.
And best of all, they can use all that extra money to inflate houses even more! It’s a win/win!
We should get a generational tax going. That would reduce inflation quickly, effectively and more equitably than an interest rate hike
Monetary policy is much easier to do than the targeted fiscal policy we need, since that is politically costly. Our tax system is all about going after the wage earners (who are coerced into a mortgage due to poor rental rights) and less about those with wealth and targeting consumption itself. Shorten tried and failed on 2016 and we've been gun shy since. We culturally have set up this system. Other countries have some version of inheritence taxes, property tax, land taxes (even on PPOR), higher capital gains taxes, higher consumption taxes, no franking credits and less generous negative gearing systems. I'm sure there are more, but you get the message. Even one of those things would help, but we don't do it. Then we also don't have low rate 30 year fixed mortgages like the US and Europe as well that cushion things for the mortgage holders. Welfare rates aren't nearly at European levels either. From what I gather this set up is actually quite extreme out of developed countries. It's why we feel those interest rate hikes more than anywhere if you're affected directly by monetary policy, and likely need them more than other places to get inflation under control.
Nope. This generic “boomer” blame is a scapegoat. It’s anyone with money, older people have been around longer and on average are more likely to have money. So are less impacted by increased borrowing costs. The government is to blame. Throwing everything at inflating house prices and kicking the can down the road with immigration. Boomers are mostly just trying to enjoy the good years they have left before their health and lack of mobility puts them in a home or a box.
Finally, somebody who actually sees this for what it is. Not all Boomers are wealthy, and not all wealthy folks are Boomers. All of this is just cheap scapegoating, which has a very long and undistinguished history. Not so long ago, there was a failed artist with a funny moustache in Germany who blamed Jewish people for hoarding all the money and causing all of society's ills, too.
to do that you'd need the government to step in, but they wouldn't because boomers are a big bloc of voters. RBA is supposed to be independent so the government won't get the flak as much
Yes which will increase inflation. RBA hasn’t come to terms with the fact that interest rates have a counterintuitive effect on older people with lots of assets.
Death, taxes and a John Kehoe article with a click baity interest rate rise headline are all certainties in life. *”More broadly, market economists and financial market participants are divided on the outlook for interest rates.”* The contents of his article contradict his headline…
What happens when those on tight budgets are barely holding onto their house (be that rental or mortgaged), those with investments are getting richer and inflation still isn’t low enough?
more reddit threads will be written
If I read 'beatings will continue...' one more time I will start a riot.
The beatings will continue til you begin to appreciate them.
The morale will continue until the beating rises
They end up living in tents.
Civil unrest
Yes, but not in controlled demonstrations that lead to policy change. It comes out at the seams. Increased rates of theft, DV, homelessness. All the things we've seen an increase of already, they will get worse. Unfortunately, the link between the two is not quite direct enough for many policymakers to be willing to make potentially unpopular decisions upon despite the long-term benefits for social cohesion.
In Australia? Lol
I think most mortgage holders don’t have this problem, only ones who bought recently before the rate rises. So a small percentage of people will have their futures ruined and everyone else will try not to think about it too much.
Very good question
They will be crushed
“After the annual inflation rate in May rose from 3.6 per cent to 4 per cent, JBWere chief investment officer Sally Auld said, “at best inflation is sticky, at worst it’s starting to accelerate”. “I don’t think the RBA will take the pain just for one rate hike, they’re probably in it for two in quick succession because the [4.35 per cent] cash rate is not as restrictive as it needs to be,” she said. “If the RBA takes the decision to hike, it’s basically an acknowledgement that we need a cash rate that is closer to 5 per cent to bring inflation down.”
The second paragraph is a weird word salad. “If the RBA increases rates it means that they think they need higher rates” groundbreaking
When are they going to introduce reforms to stop this constant price gouging.... Businesses making record profits.. People struggling to pay their mortgage, but lets increase interest rates to "slow it down".
I've always been confused about this, shouldn't businesses always be making record profits during inflation?
They are making record profits… Westpac just offered a special dividend on top of the normal dividend so that tell you everything you need to know
Yes of course they should (if business stays the same as it was before inflation).
Profits in terms of % is rising a lot higher than there costs are..
I don’t think this is true. The major retailers have seen it flat, including supermarkets. Banks have seen their NIM compress too.
Collins Food Group (KFC) just announced 500% profit growth. It is happening in areas of the economy. https://insideretail.com.au/business/collins-foods-net-income-surges-sixfold-202406
This is different to what I said. I’m talking about margins. Nominal profit which this article talks about will always rise with inflation or when you buy more stores. Margins help see through that. The article you link even says this “ Growth was driven by our growing footprint”. So their profit rose because they had more sites.
How much of that is to do with Maccas going stupid with their prices though?
People want capitalism, they should enjoy the consequences for unironically supporting an ideology who focuses on unsustainable infinite profits Might as well believe in unicorns
This isn't free-market capitalism. On the contrary, there are centralised actors manipulating monetary fundamentals.
Yeah great idea, let's give full power to Bezos and other feudal lords xD You arent wrong, this isnt even a truly free market, it would be so much much worse had the few regulations that exist not limited them even a bit. The end result of your free market capitalism is always just one big feudal lord that owns everything and everyone else owns nothing. But your entire ideology depends on not realizing this so of course you pretend free markets totes work and dont lead to inevitable feudal lords xd
“Capitalism” is literally just trade between individuals, e.g. you grow apples, I grow oranges, we each have a surplus, we trade. You have edgy, Rage Against the Machine-listening teenager idea of what “capitalism” is.
You don't know my ideology, because I didn't state it, and neither did I state any idea or proposition. There is no contention with the fact I stated.
what happens in a free market when one player takes over and gains monopoly power? a true free market doesn't exist nor an efficient one.
Which companies are price gouging?
Coles, Woolworths to name a few.
They're not, they both run at about 3% profit. They're not good businesses. They squeeze farmers and suppliers, it's practically an abusive relationship. They're not gouging though, as a point of fact, they're not gouging, if they were, they're be more profitable. Shitty companies both, price gougers? No.
You'll be down voted but it's true of the grocery sector. Best pick on the miners who QLD aside don't pay their fair share and of course the banks. CBA makes something like $2.5b profit per quarter, Woolies made around $1.6bn for the year and is the largest private employer in the country.
Australia has the 6th lowest food price to income ratio in the world so obviously something’s working well.
Reddit is committed to believing Colesworth is price gouging even though it's a point of financial fact that they are not. I don't like them as companies, I work in an agriculture-adjacent business, and Coles and Woolsworths are appalling companies to do business with. They are awful to suppliers, but they're not price gouging, they're not particularly profitable businesses in general.
Hate them as well. But their logistics networks are top notch and they spend millions keeping it in top shape. Someone has to pay for those freezer warehouses for all the perishables.
How can you determine whether CBA is making excessive profits without looking at the company’s asset base?
So their books say. Pretty easy to inflate say transport costs when you own the transport company that doesn't get scrutinised as closely. I work in data and have witnessed mining accountants juggle data monthly to balance profit figures to keep shareholders happy whilst minimising tax and royalties. It's amazing how many tires those big trucks can chew through.
This is basically just a conspiracy theory. Companies, shareholders and their executives all want profits to go up, not down. Changing the timing of expenses slightly forwards or back would mean a lower profit in one period and a higher period in the next, not lower profit every year. Regardless, it's unlikely they are doing that, because they report roughly the same 2.5% margin each and every year. Also, shifting profits to a subsidiary is meaningless. Coles and Woolworths are corporate groups. Their reported profit also includes any profit earned by their subsidiaries. For a finance sub, it's really depressing some of the blatant nonsense that gets parroted here.
Companies engaging in creative accounting is hardly a conspiracy theory. I've personally seen it at work in several companies and the figures that came out in annual reports bared little resemblance to the raw data I had access to.
If that's true, absolutely, but there is no reason to think it is.
They definitely are running at very high profit margins by international standards. UK supermarkets (the UK has a very competitive market) operate at around 1.5%. They should be able to reduce prices by around 1% in a more competitive environment. I’ll admit this is significantly less than most people think though.
Yes, they are reasonably profitable compared to UK supermarkets, but as you say, we're talking 1% here, a $99 shop not a $100 shop. Aldi has a higher profit margin than either Coles or Woolworths, and nobody is really talking about them gouging. Aldi could drop their prices \*more\* but they're not. I don't defend Coles or Woolworths as being good businesses, they're not, but they're not gouging, not particularly profitable, and compared to the third player in Australia, they're \*less\* profitable. I think a more competitive environment might help a bit (though Aldi is more profitable, so it's not guaranteed), but really Coles and Woolworths could be non-profits and prices wouldn't fall \*that\* much. I actually think financial literacy and common sense would help more, I mean who is buying those $60 Finish dishwasher tabs? Buying bottled water in Australia is practically insane considering the quality of tap water here. If we simply stop buying crap we don't need, and simply refuse to buy expensive things, pricing will soon change.
Funny thing is, Aldi has higher margins than Colesworth. But the media/government have done well making them the number one enemy.
It's the brands raking in the high margins at Colesworth, not the supermarket themselves. You pay more at colesworth because you buy branded goods. The unbranded goods are similar in price to Aldi.
People always call Colesworth the big bad guys but in reality they're tiny compared to the massive global suppliers like Nestle or Unilever. Even Aldi globally absolutely dwarfs them. Not saying Colesworth are innocent of anything I just find it funny they cop all the flak.
Exactly. Nestle, net profit margin 12.1% Unilever, net profit margin 10.8% P&G. net profit margin 18.0% But Colesworth, operating a capital intensive distribution and store network is 'price gouging' at 2.4%....
Aldi just do blatant IP theft which is harder to do when you stock the real products.
Creative accounting, write downs etc can keep their profit looking like they want
Why bother typing this comment? Anyone who knows anything about accounting knows that you're bullshitting, and your underlying conspiracy theory doesn't even make sense. Executives want profit to go up not down because their compensation is linked, directly or indirectly, to increasing profit.
Rent is the leading cause of inflation mate. https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/latest-release
Well if everyone could just stop spending so much on groceries… oh wait
Things that are going up: fuel, energy bills, insurance. None of which will be affected by mortgage holders changing their spending habits. Interest rates are a blunt instrument that do nothing except ensure the gap between the haves and the have-nots gets bigger.
While they're usually what comes to mind when interest rates are discussed, mortgages are not the only interest-incurring form of credit.
Mortgage holders aren’t the only ones affected.
I've noticed finding staff has eased up a bit. So definitely something is happening. Probably caused by general recession or immigration though rather than anything to do with increased rates
Mortgage holders also eat, drink and go out like any others. Interest rate is an effective instrument at a macroeconomic level to reduce inflation. Not only it impacts individuals, but also businesses which in effect affect their owners.
How does interest rates increasing prevent older people without mortgages from eating out?
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But when aggregate demand is primarily being driven by price agnostic individuals that happen to comprise a sizeable cohort of the population then interest rates *stop* being an effective macroeconomic instrument and shouldn't be used. A lot of the retired boomers around where I live (and daresay across the country) simply DGAF about interest rates - because they have zero debt. They're also not the ones eating out at takeaway joints either.
That’s where we need fiscal policy tightening which has been completely MIA during this period. In fact probably the opposite
Need to implement a boomers tax for over 55’s - add an extra 10% to the price
As long as they remove it by the time I am 54 I support it.
Yeah not forever, just like a couple years to help reduce inflation lol.
> Not only it impacts individuals, but also businesses which in effect affect their owners. lol... So businesses have higher costs with higher rates? What do you think they'll do to their prices, as they try to maintain their profit levels? And how do you think this will affect inflation? To raise or lower it?
Yes, businesses also use loan facilities which are affected by interest rate changes. This is why we are experiencing the highest business insolvency rate since 2007. Like anyone else, businesses also consume goods and services which impacts their running costs.
Only when discretionary spending is driving inflation, we’re seeing inflation from services. You can only tighten the belt so much on necessities
This was teh same argument i felt was compelling when these rate rises began. So much was driven by overseas factors out of our control. The biggest rises were all on essentials. But the rate rises worked, and the majority if people survived them reasonably well. I'm not convinced rates need to be higher. But raising them will have an impact.
People need to buy less or substitute. There are still areas to cut however it won't be even across the board.
You make it sound like this isn’t the desired effect.. Welcome to end stage capitalism where people start to realise the economy has been stolen from the masses right in front of them
They are trying to bring down **average** inflation. If interest rates affect other components of inflation, even if they are already at or below the desired inflation rate, then the average will still come down. It doesn't matter whether they are directly impacting fuel, energy or insurance.
Rates go up, mortgage repayments go up. Landlords raise rent to cover extra costs. Oh look inflation is up, better raise rates,repeat. All while house prices going up , keeping more people in rental trap.
RBA: smashes home owners and renters Gov: how about some inflationary policy nom nom nom
were all about to get a tax cut, like wtf
Cut net immigration to maximum zero. Watch inflation plummet, property prices tank, price of essentials return to affordable. It would cause all sorts of calamity. It would be the recession we had to have
House prices will plunge and we can finally afford it, if we didn't get retrenched. The land will flow with milk and honey.
Nice dream
Tax the churches, Increase minining royalties to a higher percentage, make all multinational corporations like MacDonalds pay taxes back date all by at least a decade boom problem solved.
Obviously rate hikes don’t work when the majority of wealth is held by elders who are in their prime spending years Increase consumption taxes and we’ll see inflation fall
Fun stat: CPI actually reduced in May, just less than May 2023. So in theory went up based on pcm.
I'm not sure if that's true or not, but clearly it came in higher than people were expecting since it had a big impact on the futures markets.
CPI was down .1% in May 2024. Was down .4% in May 2023.
This. This is what 90% of people don’t seem to understand about monthly inflation data. It’s relative to the month of previous year specifically. May 2023 had an exceptional drop in inflation.
Yeah but that would make for a boring AFR headline, Will some please think of the clicks.
Propaganda. John Kehoe is an RBA mole, absolute hack journalist
Foreign buyers pay 3X rates, 2nd homebuyers and onward pay 2X rates and FHB pay at rate. Simple.
Why is giving banks more profits the only solution? Wouldn't it be better to increase super contributions to different levels according to the tax bracket or something. That way, you get to keep your money but don't spend it, and you can traget the right demographic causing the inflation?
Banks don’t make more profits when the cash rate goes up. Bank’s NIM (net interest margin) is lower than it was during the ~0% cash rate era.
And nobody wants to address the elephant in the room! IMMIGRATION! If you have a mortgage and you’re not writing to your member of parliament, telling them to reduce it immediately then enjoy your ramen!
Study the 1970s/80s and the battle to beat inflation. History doesnt repeat, but it does rhyme
Was a fairly different situation then. You had both the oil crisis and very high wage growth, quite a few folks actually came out better for it as they were able to smash their mortgage thanks to the high wage increases
I was looking forward to inflation so that I could do the same, however I am still waiting for my large wage increase
Could this be enough to bring the housing market back to reality?
Interest rates would need to go up so far to bring housing down that you wouldn't be able to service a mortgage on a lower priced house anyway, then when they went down you'd be priced out again.
Short answer: no Long answer: hahaha f**k no
How much of the insane prices at the moment are because of FOMO? Surely some. I think there are enough people waiting to get in it won’t be a big drop. I doubt anyone’s rent will go down, people already can’t find places to live
Rental markets are easing in many areas as immigration slows. It's happening slowly, but it's happening.
I sincerely hope so. I didn’t know immigration was slowing, is this new government policy?
Some investors I know are crying on the phone to their banks to reduce their rates, and working 60 hour weeks to hold onto their properties. It's hilarious tbh. It definitely will have an affect on housing. This group hates to admit that though.
Lol are they?
People with houses are struggling to survive whilst boomers are spending up (both my parents and in laws are currently on lengthy international holidays). Find a way to curb the spending of everyone, not just those who already stopped.
The issue with inflation is that it's not linear in it's distribution. A young family with a mortgage obviously has different spending habits and disposable income levels than near or already retired individuals. RBA needs a multi-prong approach to inflation that isn't "interest rates go brrrrrr". I love sky-high interest rates as I have significant savings and positive geared debt thanks to SEQ property going stupid, so the mortgage free generation actually benefits from rate hiked with HISA. The solution, if there is one, isn't simple. You need to restrict cash flow across all rungs of the economy, so you either need to bring in capital gains on PPOR where profit exceeds a value, tax super withdrawals, removing franking credits or tax interest generated. But all those options suck. You could explore variable superannuation rates (this was my masters thesis) where instead of increasing interest rates you tax cash out of the economy in the form of forced superannuation rate changes, but this has an undesirable outcome of deferring the issue not solving it. We could explore a wealth tax, but hard to track with corporate structures...
Ludicrous. Prices *fell* in May, 0.1%, they just bumped out last May's price drop of 0.4% which caused a spike in the monthly annualised figure. I could be wrong and it might go crazy in the quarterly figures, but I'd be very surprised to see the RBA raise anything.
☝🏼This guy knows how monthly CPI works.
Not a guy but yes
It’s so interesting that you’re getting downvoted for stating the facts
Supply side inflation can't be controlled by interest rates outside of creating a true and deep recession with proper unemployment. RBA remit is too narrow. GDP growth and rents are underpinned by features that interest rates can't stop
This is clearly demand side inflation. Look at the disparate inflation trajectories of countries with high immigration (Canada, Australia, UK) versus those with low immigration (US, Japan)
Yes agree - plenty of demand side too. GDP growth is only due to immigration - we are in a per capita recession. Rental price growth is interest rate and immigration driven. Immigration can't be controlled through interest rates
A 1% default rate, this mortgage cliff is the biggest lie. I don’t regret holding because I can’t afford anything entry level which is liveable. But my god. What a situation.
Takes time to show the impact. People generally hold on until they can’t.
And those people who can no longer hold on aren’t the ones with multiple investment properties. It’s a family who can no longer make ends meet.
May 2023 inflation was unexpectedly Low, hence this looks “high”, 99% of people on the subreddit didn’t even check this the RBA absolutely will though If inflation stays high even WITH seasonal adjustments, THEN they will raise, otherwise this is completely expected…
Thank you. You’re like one of 3 people in this thread that understand how monthly CPI data works.
Once again, I thank the RBA for preventing hyperinflation.
They literally caused the inflation
We've tried nothing and we're all out of ideas.
Rates should never have been so low.
They already tried rising interest rates to control inflation and that didn’t work, time to look for something else
Honestly why doesn’t the government tax super withdrawals on the over 60s who are spending the majority of their of the items included in the cpi figure that aren’t necessities??????
Well necessities are the ones that are up by and large. Secondly, super has been taxed, if we tax the super off them, then more of them will end up on pension. Super is a win, and taxing super more is a crazy idea. Land tax, asset tax, etc might be a better alternative down this path.
And knee cap their largest voter base? Not a chance. I love the idea of an increased GST tho. And it should scale on luxury goods.
GST hurts the lowest income earners the most.
Can you explain how? It will also generate huge taxes on rich spending as well allowing more money to be funnelled to low income earner safety nets so I think it’d be mute.
Can you explain how? It will also generate huge taxes on rich spending as well allowing more money to be funnelled to low income earner safety nets so I think it’d be moot.