Inflation, Growth and Commercial Property

You need to Look Behind the Official Inflation figuresTHE LABOR government is crowing about its latest statistical achievements — low inflation, low unemployment, strong growth and booming investment.

So, why aren’t Australians feeling an overwhelming sense of warmth and well-being? Probably, as my earlier articles have explained … it all comes down to an overall lack of confidence.

Most people are still expecting the RBA to further reduce interest rates. However, barring a European meltdown, that would seem to be rather unlikely in the foreseeable future.

You only need to study these graphs to understand the RBA’s hesitancy — because clearly, the average measures of inflation currently sit at the bottom of the target band adopted by the Reserve Bank.

Closer Scrutiny is Required

However, when you look more carefully at the composite parts, you can better understand the make up the overall CPI figure itself.

As a result of the high Australian dollar, the prices for Tradable items (mostly imported) contribute -2% per annum to the total figure.

However, the prices for Non-tradable items (being domestic goods and services) are currently growing at 3.6% per annum. And the problem is that these represent about 60% of the CPI’s final figure.

These domestic items include essential goods and services, which people need and use on a daily basis.

Things like … electricity, education, healthcare and rent — where electricity alone has risen by 10.7% over the past year.

Therefore, the low “official” measures of inflation mask the fact that everyday consumers continue to experience living costs, which are rising on a monthly basis.

And this is what is fueling the present uncertainty within the Australian community.

However, the real irony here is that, if overseas events were to cause the Australian dollar to fall below parity (with the US dollar) … this would provide a welcome boost for all our exporters — not merely the mining sector.

And in turn, this would help restore some balance to our present 2-speed economy.

Bottom Line: These are certainly strange times. And yes, local investors do seem to be confused by all the mixed signals.

However, this doesn’t seem to be deterring private overseas buyers, who see Australian Commercial property is extremely well-placed for growth, over the next 5 years. And in particular, Melbourne — as Dr Frank Gelber (of BIS Shrapnel) confirmed last week, at the REIV’s Annual Forecast Luncheon.

All these investors require is a well-located property, with a solid tenant on a good lease … and their decision to buy quickly follows.


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