Money

Post Market Wrap | RBA says inflation has increased in many parts of the world

Published

4 years ago

April 6, 2022

Michael Kodari - KOSEC Author

This Post Market Wrap is presented by KOSEC – Kodari Securities

Resilient economy and low unemployment likely to push inflation higher in coming months.

10-year bond yield hits 6 year high at 2.96 percent.

Investors should brace for higher RBA interest rates this year.

RBA on hold … for now

The Reserve Bank of Australia (RBA) at its April 5 Board meeting decided to leave the official cash rate unchanged at 0.1 percent. It has been at this level since November 2020, when the RBA reduced the official rate in anticipation of an economic slump resulting from enforced lockdowns arising from the COVID pandemic.

The RBA indicated that it is closely monitoring emerging inflationary pressures in determining the timing around an increase to the official cash rate. The RBA noted that supply chain disruption has led to shortages of goods and materials, resulting in higher input costs. The Bank is also cognisant of the inflationary impact of soaring petrol prices. Rising house purchase costs and grocery inflation related to flood damaged crops, are other factors contributing to the rising inflationary outlook. The potential for higher inflation is exacerbated by the tight labour market that may see higher wages, adding further pressure to input costs. The latest ANZ monthly job advertisement survey pointed out that job ads are at a 13 year high. The survey supports the RBA’s forecast that unemployment will fall below 4 percent this year and remain low into next year. The Federal budget papers go further and have forecasted unemployment to remain below 4 percent for the next 3 years. Australia hasn’t experienced this level of unemployment for 48 years!

The RBA observed in its April 5 statement that periods of low unemployment correlate with an increase in real wages, implying wage increases at a rate above the inflation rate. This prospect has elevated the inflationary concerns shared by the RBA Board.

The inflation outlook is further complicated by the $8.6 billion cost of living relief package announced in the Federal Budget, at a time when the economy is already performing strongly. The cash injection is aimed at low to middle-income workers, who tend to spend any money received.

The Australian economy is strong

The RBA’s announcement referred to the strength of the Australian economy following an easing of forced lockdowns introduced at the onset of the Omicron variant. The Bank also stated that household and business balance sheets are strong, and the construction work backlog is supporting employment growth.

The RBA acknowledged that while inflation is increasing in Australia, it is less than the level in other countries. According to the RBA, underlying inflation in Australia is 2.6 percent, while the headline rate is 3.5 percent. The RBA will publish its revised inflation forecasts in May and has recently stated it expects annual headline inflation to exceed 4 percent in the months ahead.

The impact of higher interest rates is more readily absorbed by the economy during periods of strong employment and wages growth, than in times of a weakening economy. Moderately higher interest rates at this stage of the economic cycle, should enable economic growth to be sustained at a rate consistent with near full employment, without embedded consumer price inflation, that may generate a wages spiral. This implies that an interest rate rise in the near term should have a less adverse outcome for investment markets and households, than if left until inflation is entrenched within the economy.

A strong domestic economy has given the RBA grounds to respond to an expected acceleration in the rate of inflation in the period ahead. The response will be an increase in interest rates. The question is – when, and by how much?

Investment Implications

RBA interest rate policy is determined by underlying inflationary expectations and not the headline inflation rate. Interestingly, the 10-year bond rate is widely considered to be a useful pointer to the direction of future interest rates. This is because bond market participants on both sides of the trade must agree a bond price that reflects the direction and quantum of the interest rate (yield) payable over the duration of the bond. Accordingly, trends in long-dated bond yields represent the real-time collective wisdom of bond market participants, making changes in long-dated bond yields a useful marker that illustrates where interest rates may be headed.

The Australian Government 10-year bond yield has been steadily rising in recent months. The 10-year bond yield rose to 2.95 percent today, well up from 1.67 percent on 1 January 2022. The message from the Australian bond market is clear -Australian interest rates are set to move higher, on the back of higher inflation.

The forecast continuing low level of unemployment below 4 percent, strong economic growth forecasts, and emerging signs of inflation, all indicate the need for historically low interest rates no longer exists.

The evidence suggests that the RBA is likely to announce higher interest rates soon. This may occur in June after the RBA’s revised inflation forecasts are announced in May.

A major implication of higher interest rates for investors is the impact on equity and property valuations. The all-time low interest rate environment has supported equity and property valuations for a lengthy period.

In response to a changing interest rate environment, now is the time for investors to evaluate their portfolio in terms of withstanding the headwinds likely to accompany a gradually increasing cost of money over the coming 12-18 months.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

Money

Gold prices soar to $4,000 an ounce milestone

Gold prices soar to $4,000 an ounce amid investor panic over dollar weakness and economic uncertainty

Published

3 hours ago

October 8, 2025

Ahron Young

Gold prices soar to $4,000 an ounce amid investor panic over dollar weakness and economic uncertainty

In Short:
– Gold prices reached $4,000 per ounce due to a declining dollar and economic uncertainties.
– Investors are advised to be cautious as prices near $4,000 may lead to potential market corrections.

Gold prices reached $4,000 per ounce for the first time on Tuesday as investors sought refuge from a declining dollar, geopolitical tensions, economic insecurity, and persistent inflation.Gold futures closed at a record $4,004.40, peaking at $4,014.60 during the day.

Prices have risen about 50% this year, influenced by a 10% drop in the U.S. dollar index and shifts in trade policies under President Donald Trump.

Central banks and retail investors are increasingly purchasing gold.

Countries like China are moving away from U.S. Treasurys after significant sanctions imposed on Russia due to the Ukraine invasion in 2022. Retail investors desire protection from inflation.

The surge in gold prices followed the Federal Reserve’s interest rate cut in September, making short-term debt instruments less appealing. The expectation is for two further rate reductions by year-end, with the Fed’s next meeting scheduled for October 29.

Market Caution

Bank of America has recommended a cautious approach towards gold as prices near $4,000, warning of potential “uptrend exhaustion” that could result in a market correction in the fourth quarter.

Investors should remain vigilant regarding gold investments, as potential price consolidations may occur.

Money

International brands adapt strategies to reach Chinese consumers

International brands adapt strategies to engage Chinese consumers through localisation, data insights, and cultural integration amidst market challenges

Published

2 days ago

October 6, 2025

Ahron Young

International brands adapt strategies to engage Chinese consumers through localisation, data insights, and cultural integration amidst market challenges

In Short:
– U.S. and European brands are refining strategies to engage Chinese consumers despite economic slowdown.
– Localisation and consumer data are crucial for successful market entry and product development in China.

China’s economic slowdown has not deterred U.S. and European brands from redefining strategies to engage Chinese consumers.

The nation remains an enticing market, prompting companies to innovate amid rising local competition.Kraft Heinz, for example, has enlisted a local agency to enhance its ketchup sales, utilising promotional campaigns that resonate culturally, such as marketing ketchup in stir-fried egg dishes. Competition in this market is dynamic, with shifts in consumer behaviour evident over time.

Brands, including Starbucks and Lululemon, demonstrate that successful entry often hinges on localisation.

Effective international marketing strategies dedicate significant resources to content-first campaigns, tailoring products to local preferences. Under Armour’s approach features affordable product lines and community-building through livestreams.

Foreign investment remains robust in China’s evolving market, with brands adapting to new social commerce norms exemplified by platforms like Douyin. The shift presents unique challenges requiring comprehensive strategies, which can quickly yield substantial sales benefits.

Data Utilisation

Access to consumer data is critical for brands navigating the Chinese market. E-commerce platforms like Alibaba provide detailed consumer insights, allowing companies to innovate based on market needs. An example is Perfect Diary, a makeup brand, which successfully developed targeted products for price-sensitive consumers.

With the recent iPhone 17 launch, JD.com reported strong preorder volumes, highlighting the relevance of tailored features in attracting local interest. Companies that establish local R&D facilities gain a competitive edge by developing products that align with local tastes swiftly.

Cultural engagement is paramount for brands aiming to resonate with Chinese consumers.

Collaborations with local artisans signify a deeper cultural integration. Despite market challenges, innovative store designs, like LVMH’s new Shanghai location, reflect a blend of heritage and modern consumer values.

Money

How do banks assess you for a home loan?

Published

3 days ago

October 5, 2025

The Conversation

Ama Samarasinghe, RMIT University

Navigating the money side of buying a home can be daunting – especially if it’s your first time.

Unless you’ve recently come into a small fortune, you’ll need to have saved a deposit and take out a home loan.

That means engaging with the world of banks and mortgage brokers, and grappling with what might be intimidating-sounding jargon – terms like “pre-approval”, “offset accounts” and “serviceability buffers”.

Here’s a general guide to some of the essential steps: how to figure out what you can afford, how the loan process works, and some key things to watch out for before taking the plunge.

How much can you afford?

Taking out a home loan means you’ll be required to make regular repayments over many years. So, a bank or other lender will first want to make sure you can afford them.

This article is part of The Conversation’s series on buying a first home.

We’ve asked experts to unpack some of the biggest topics for first-home buyers to consider – from working out what’s affordable and beginning the search, to knowing your rights when inspecting a property and making an offer.

It’s important to understand the difference between borrowing capacity and affordability.

Your borrowing capacity is the amount a lender is willing to offer you, based on your income and debts, and their own stress tests. Affordability, on the other hand, is about you – your lifestyle, choices and actual spending patterns.

These two things are related but don’t always align, so it’s important to factor affordability into your decision. Being clear on both helps you avoid taking on more debt than you can comfortably manage.

Doing your own calculations first

It’s a good idea to start with your own numbers. List all your household expenses over at least the past six months – everything from groceries to streaming subscriptions – and work out the monthly average.

Streaming apps on a smart TV — Monthly subscriptions – such as streaming services – can have an impact on borrowing power.
Oscar Nord/Unsplash

After setting aside some room for savings and unexpected costs, the remainder gives you an indication of what could be available for mortgage repayments.

As a rule of thumb, many suggest keeping repayments to no more than about 30% of your after-tax income.

Here are a few tips to avoid mortgage stress:

Budget for reality, not hope. Don’t assume you’ll slash spending just because you’ve bought a home.
Stress-test your budget. Could you still make the repayments if your interest rate rose by 0.25–0.5%? What if it rose by 1-2%?
Don’t forget the extra costs that come up with home ownership. Factor in insurance, council rates and higher utility bills in a larger home.

How much will the bank lend you?

Your borrowing power depends mainly on:

household income
living expenses and debts (credit cards, car loans, buy-now-pay-later arrangements)
number of financial dependants.

Most banks have online calculators in their banking apps to check your borrowing capacity. The Australian Securities and Investments Commission (ASIC)’s Moneysmart site also provides calculators for borrowing and repayments.

Lenders are also required by law to check a borrower could still afford repayments if interest rates rose by a certain amount. This “serviceability buffer” is currently three percentage points.

Pre-approval doesn’t guarantee a loan

Getting pre-approval means a lender has reviewed your finances and indicates they’re willing, in principle, to lend you up to a certain amount.

But it isn’t a binding contract. You’re not locked into taking the loan, and the lender isn’t legally bound to provide it.

Still, getting pre-approval can have some benefits, including:

giving you confidence about your borrowing capacity
helping set realistic price limits and narrowing a property search
signalling to real estate agents and sellers that you’re a serious buyer, which can make you more competitive in a hot market.

At auctions, pre-approval is especially important. Once the hammer falls, the sale is binding – there’s no cooling-off period and no finance clause.

If you don’t have pre-approval in place, you could win the bid but may be unable to secure finance, leaving you at risk of losing your deposit.

Different types of loan

One of the first decisions you’ll face is whether to go with a principal and interest loan or an interest-only loan.

Principal and interest is the standard choice. Each repayment reduces both your loan balance and the interest owed. Most first-home buyers opt for this option because it steadily pays down the debt.

Interest-only loans mean that for an agreed period (say five years), you only cover the interest. Repayments are lower during that time, but the loan balance itself doesn’t shrink.

To illustrate, if you took out a $200,000 interest-only loan at 5% for five years, you’d pay $10,000 a year in interest. But at the end of the five years, you would still owe the full $200,000.

Interest-only loans can make sense for some investors focused on cash flow, but they’re far less common for first-home buyers.

Finding a loan

There are many ways to find a loan that suits your needs. You can compare products directly with lenders, use comparison sites, or go through a mortgage broker.

Mortgage brokers compare loans on your behalf and are often paid a commission by the lender, meaning you aren’t directly charged a fee.

It’s important to make sure they’re licensed (check ASIC’s professional register), reputable, and – if possible – recommended by family or friends.

A good broker will break down fees, features and hidden costs so you’re comparing more than just the interest rate. Before you sit down with a broker, think about what matters most to you: getting the lowest cost loan, or flexibility through features?

Take offset accounts as an example, where savings can reduce interest on the loan. An offset is a transaction account linked to your loan. If you owe $450,000 but keep $30,000 in the offset, you’ll only pay interest on $420,000.

Another common feature is called a redraw facility. This lets you make extra repayments (thus reducing the amount of interest you pay) and withdraw them later if needed.

Disclaimer: This article provides general information only and does not take into account your personal objectives, financial situation, or needs. It is not intended as financial advice. All investments carry risk.

Ama Samarasinghe, Lecturer, Financial Planning and Tax, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.