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(LIVE) RBA Aug 2026 | Inflation is STILL Too Damn High!
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The RBA has held the cash rate at 4.35% — but that doesn’t mean the rate story is over.
In this August Economic & RBA Update, Ben Kingsley and economist Evan Lucas unpack the decision, why inflation is still proving stubborn, and why another rate rise hasn’t been ruled out.
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SPEAKER_01Well, hello everyone, and welcome to another economic and RBA update. I'm joined by my very good friend and co-host, and also the co-host of Exchanges Podcast, Evan Lucas. But Evan, you're not in the studio. You're in Singapore, I believe. Drumming up some business. You're in Singapore?
SPEAKER_02I'm trying to, I mean, it's an incredible time to be up here because they are just gone past their national day. It actually happened on Sunday, but this is a country that's going from strength to strength and it knows it's going from strength to strength. They're very proud of what they've done, particularly over the last 15 years that's now coming to fruition. And yes, when I'm up here, although I'm up here for holidays, I also do come up here for work and for business. And speaking to my connections that I've got up here, they they do ask this question. They sort of look at you like, why is Australia different at the moment? And it is it is that sort of question. Like they they genuinely look at it as like, why is this happening or why is that happening? Or you know, that they talk about it from the fact, you know, why what's happened to cause Australia to slow down so much? Uh and it is forcing them to start looking elsewhere. They'll always have connections to us, don't get me wrong. But yeah, it is fascinating to be up here again. And I was here two years ago and now back up again. That even the the questions are much, much stronger this time around than they were two years ago at least.
SPEAKER_01Evan, Singapore should be a poster child for any nation who is thinking about how do they grow living standards for their people. Um, it's a simple answer, and that is run a super strong economy, and that's exactly what Singapore know how to do. They play to their strengths because they don't have a lot of natural um, you know, resources and minerals or land, uh, and they do an incredible job in terms of their economic positioning and how they compete and win in markets. So they are a few. Final part on that.
SPEAKER_02I'm just gonna jump in here. The other thing, Ben on to jump on what you've put the other thing about it, which is what we're gonna talk about a lot at the moment, is that the hand-in-glove between business and the government is incredible, right? The government and business work side by side. The government controls a lot of, you know, in our world of property, they control a lot of it there. The you know, the housing board is very strong here in terms of how it works, they control the regulation, but then they will hand over every other step to private business. The businesses work hand in glove with each other, and that's the productivity part that you know Singapore has absolutely got down pat, which is again the argument that keeps coming back at our governments and the way that we run our it's very much this rather than this.
SPEAKER_01Yeah. Well, I mean, all you need to do if anyone's sort of testing this, just measure GDP per capita and have a look at where Singapore came from in the 1940s, 1950s, 1960s to where they are today. It's uh it does put Australia to shame in terms of you know, from the sleepy little sort of fishing port where they had lots of drug problems to a powerhouse of Asia that they've become. And I think that look, they have also benefited from what's happened in Hong Kong uh in regards to the changes there. So a lot of businesses have moved their Asian hub into Singapore, but it is one of the financial capitals and and certainly one of the economic engines of Asia. So uh all credit to uh the way in which the Singaporeese run their government and run their economy, and and obviously their people are the beneficiaries of that. Now let's take a look at the Australian market before we uh before we take the RBA announcement. Now to start with, I wanted to talk about what has changed uh since the RBA rate call. Um, and we can see a few things that have had changed. We're still inflation is still above target. We've seen restrictive rates, but the economy is battling on, but it's a sluggish economy. Um, wage growth is on the firmer side, so we're seeing a lot of changes around wage growth, and I'll talk to that later. The board still has an inflation upside buyer, so let's see if that changes today when it comes to their announcement. There's a bit going on in terms of that. Um, obviously, the market expectation has shifted after those inflation Q2 results that we got as well. Um, so we're not expecting a rate rise today, but uh you never know, it's still potentially a possibility, and that's why we do want to
The case for a rate hike…
SPEAKER_01talk about what is the case for a rate hike. And so I'm gonna bring you in, Evan, and we'll talk through underlying inflation remains too high, labor market still relatively tight, consumer spending is still too strong. Um, so consumers are still spending, inflation expectations risk becoming entrenched, um, and we're also seeing RBA credibility and some insurance against future inflation shocks as the big thing. So, talk to us about making the case at the moment for where we are with uh with the cash rate.
SPEAKER_02As much as I'd love to not make the case, I completely agree with you with what you're saying, because I think it needs to be pretty clear that despite and after the announcement, just to let everybody know watching that we will go through a really big deep dive into the inflation figures. But the underlying inflation story I think needs to be highlighted that it is a problem, right? From the point of view that we haven't got back into the two to three percent handle since 2021, right? So this is this is where it is, and and this is where you know it is now becoming expected that inflation's running at above trend, and it's almost like we've gone, okay, and and that's a real risk, and that's why that credibility question that Ben's put there is absolutely bang on the expectations, and we'll get to that in a minute with the consumer confidence figures, it's there. But the the reason a hike is still on the cards is the consumer spending data is incredible in terms of what it is. If you last week it came out, the spending data came out, and despite the fact that consumer confidence is at its fifth lowest print in 50 years of asking, the spending growth is still, although it was the June figure, so it was end of financial year buying and what have you, and it was a slower month than April and May, it's still growing at half of 1% month on month, and it's still growing at 5% year on year. I mean, that that that is that's that's incredible. So, in terms of we are not letting the inflation story get in the way of YOLO. Like you only live once, and if you look inside the discretionary spending of what was in that figure, it is still experienced. I mean, again, I'm probably part of the problem.
SPEAKER_01I'm currently sitting and talking to you from Singapore, but it's just fascinating that the consumer of an aging population, and obviously they've got access to super, and they're in their active years. I mean, ultimately, we know that. Or was my highland, and they're not a great tour. Yeah, I mean, that they are they are spending like drunken sailors because they can. Um, you know, they've worked hard all their lives to be able to do that, but there is definitely some problems in that. All right, so so we think, you know, there might be a uh a very, very small case, but one that could be made by the governor and the board to pull forward a potential rate high on that.
SPEAKER_02I think that's a good point, Ben. Is that I think it also gets me a little bit worried about how complacent people have got for today, is that in the two weeks leading into this, the board and any of its spokespersons, whether it's the governor herself, the deputy governor, the chief economist and Sarah Hunter, they've all been saying pretty hawkish things. That exactly the case that we just made. They've been very strong on this. Now, okay, the inflation figures last week, the week before, sorry, has taken all that pressure out, but they haven't said anything since that suggests that they've changed their opinion.
SPEAKER_01Um so that's the other risk here is just a little upside risk for today's announcement. And obviously, we know end of September is the next time the board meets, but interestingly, we don't have another, you know, sort of quarterly inflation print until the November board meeting. So if they do want to pull it forward and effectively create the change that they think is necessary to get inflation heading in the right direction, the I I suspect the board would have argued that over the last two days to make that case. Let's
…and the case for a hold!
SPEAKER_01look at the alternate case for the hold. Um, and so what we can see here is inflation has moved in the right direction, but there's you know probably a little bit of fuel excise and a few other things in in that number. Um certainly the Iran war has been up and down, and fuel uh oil prices have been up and down significantly. We've obviously got previous rate hikes are still flowing through, so there's that argument to say that there's probably further slowing in the economy already happening, and we're seeing that's definitely slowing. Labor market conditions are easing, meaning unemployment is ticking up slowly. So they're the sort of uh cases that are being made around um a case for hold. So unpack those for a seven.
SPEAKER_02Yeah, so I think that's fair. The headline figure is what everybody picked up on. The fact that we were expecting the July monthly figures, and we are now a monthly figure, so maybe the RBA will argue, and I actually I'm still with Ben's view on this, is that the quarterly figures are what they're watching for because the seasonality isn't baked into the monthly figures yet, but they might use the fact that we now have them as their excuse. We did start to see it ease. It was expected to go into the four handle for the headline inflation figure, it didn't. It came in in the threes again, although it's 3.95%, so it's still bloody high, don't get me wrong. Um but in in saying that it was all moving in the right direction, yes, the war in Iran is still unknown in terms of the massive impact that it's going to have. I think the other argument is the core inflation figure, trim mean for us, is still dealing with sticky inflation. And so the sticky inflation hasn't taken off like it was supposed to, it's easing slightly. I agree with also, I mean, the argument always is it takes up to six months for a rate movement either direction to actually filter through into the economy, which means technically we're only just starting to touch the second one in terms of what's happened in in 2026 to come through. The third one will go all the way through to the end of September to actually happen. So, you know, are we waiting for that? History also suggests the RBA is not only a slow-moving ship, a very conservative ship. It would rather not rock the boat. Um, it's not like our colleagues over the over the ditch with New Zealand, where they love to rock the boat and go hard in both directions.
SPEAKER_01So they're all the capabilities to hold. Yeah, they've got their dual mandate again to try and retain as much employment as possible. But the experiment last year where they tried to thread the needle and and and make a soft landing uh backfired a little bit. Um, you know, this time last year we were we were staring down the barrel of a rate cut and thinking more was to come, and off to the races we went. So we didn't probably learn our lesson. And then so we found ourselves at the end of the year and early into the new year with you know consecutive rate increases. Now, there was also some obviously challenges around the spike in oil prices that also scared a lot of sentiment and behaviour around that sort of February time when uh Trump pulled the trigger on uh on you know sort of what he did there with Iran. But I'm also you know concerned about the productivity story and you know seeing um you know the the the wages uh that are increasing and obviously the rulings from the Industrial Relations Commission in regards to you know giving um significant uh wage increases to our uh our lowest income earners, they are naturally by design inflationary, but we're not balancing those out with any signs of productivity lifts. So, you know, I'm desperate to see an updated uh, you know, sort of data point in terms of where productivity is living because that is our biggest problem here in terms of how do you get inflation in check? And how do we prevent ourselves from you know seeing it baked in in terms of expectations that that okay, we're gonna have a three-handle for inflation uh for the foreseeable future, and we all just accept that. And well, that's that's a horrible thing because it puts so much pressure in terms of cost of living and living standards. We would love to see that inflation figure back down. God, I'd love to see it back down in the late ones, early twos, to be honest, uh, for a period of time. But I want to see that it you know that productivity come. So everyone wants more salary, which is fine, I don't mind, but it's about what are we producing to actually earn more? And obviously, productivity is not just in you know what the human labour does, it's the infrastructure, it's the technology layers, it's all of those other pieces that drives the overall productivity story. But for mine, it's like we're all putting our hands up for higher salaries, but we're not necessarily saying, well, to do that, we need to produce more uh because obviously businesses don't do that. There's going to be other ways in which you know we ultimately pay, which is which is in higher unemployment.
SPEAKER_02Yeah, and and I'm bang on with you on that. At the moment, it's pretty clear that the fastest movement in productivity is is deregulation, right? So yeah, until we have an actual genuine consensus in politicians across fed, states, and council levels to deregulate the regulation that we've been layering on, laying on itself over the last 40-50 years, then this debate will go on forever. And it is unfortunately almost that simple that we need to start at that point because without the deregulation, it's still going to be that problem, it's still going to have that overlarching areas. You know, again, you look at what's just happened in Victoria today with the fact that the new Carroll government has paused the working from home legislation to post that. That regulation shouldn't be in there. That's not productive. We understand working from home allows hybrid working and allows productivity to some extent, but mandating it is a regulation that actually leads the other direction. But I'm going to stop because we must be very close to the RBA itself. Um here we go.
SPEAKER_01Have a look. I think we're just a little shy of
RBA Cash Rate announcement
SPEAKER_01230 at the moment. But I think bringing it back to that point, I mean, yes, we've got to we've got to understand that that you know the the economy is a measure of the activity that's happening in that space. And we're seeing, you know, in terms of we've got the coin. Rates left on hold. R rates are on hold. So, yep, so we've seen that. Now we're going to obviously bring up the cash rate statement. So Evan will start to have a look at that whilst I unpack um a bit more of the story here uh in terms of um where we see the cash rate decision and what's happening next. So rates on hold. Um decision itself obviously is less important because we we sort of predicted that this would be the case. It's what's in the statement that's largely what we want to look at in terms of does the RBA continue to keep the door open for future rate hikes, or does it start to begin to prepare the market for an extended pause? There's no there's no immediate short-term rate relief that we can see until we get the inflation genie back in the bottle. So that is something that we need to understand. Now, whilst that's happening, I'll just quickly lead in with the inflation data and then we can uh we can talk to the statements. I'll just I'll just position this in terms of the inflation data. The annual inflation rate unexpectedly eased, which is a good news story, to 3.8 in June from both uh the the May's reading and the expectations of a 4%, which Evan alluded to earlier. It was the softest increase since February as goods inflation moderated to a four-month low of 3.5, with transport costs rising at their lowest pace in four months, 0.1 versus 3.3 in May, due to falling fuel prices. Inflation also slowed for health 3.7 versus 3.8. Clothing and footwear 4.9 versus 5. Meanwhile, price growth accelerated for housing 6.8 versus 6.5, and we're going to go deeper on that in a minute, whilst inflation for goods and non-alcoholic beverages remained steady at 3.3%. Concerningly, service inflation also picked up to a reading of 4 versus 3.7%. Evan, what have you got from the statement that uh we should be looking at?
SPEAKER_02The statement actually is first time in a while that they've really actually
Breaking down the RBA’s statement
SPEAKER_02used geopolitics as the excuse. So they highlight constantly that the Middle East conflict and the impact on global oil supply is the big reason we've got the problems that we do. They are saying so. I think it's the middle one from a domestic perspective, which is financial conditions have tightened in response to the three increases we've had this year. Money market interest rates, government bond yields, and the exchange rate have all appreciated, which is what we want to see. They do also highlight the momentum in the housing market has shifted with housing prices falling in some capital cities to new housing loans have also been declining notably. The RBA doesn't normally talk about the housing market. As the board and anybody that talks to them about it is like, no, no, we don't worry about the housing market. Well, what they're saying there, in my view, is that this is going to be an impact on the consumer. And I know this is a big point of yours with regards to what you really watch very, very closely, is that if you have falling wealth, therefore, if you look into the second part of that sort of paragraph and into the the next one underneath it, is that they're starting to show that there is signs that the consumer is starting to shift, that labor market conditions are starting to slightly ease, and that they want, I know this is a hard thing to say, they actually want lower and a prolonged period of lower growth to get inflation back into target. So what they're saying is they're starting to see signs that things are gonna be tight, they're gonna not be great, and they're gonna be below trend, living standards aren't gonna be fantastic, but and this is the but, it's actually what they need to see for inflation to get back into it. So that second to last paragraph or third to last paragraph, you can say that today's policy decision was unanimous. Hyper focused on high inflation. We don't want to become embedded. The 3D rates are still going through, they understand that, but inflation is still too high. Monetary policy is judged somewhat restrictive, they left it on the cash rate, but you can hear they will do what's necessary to bring inflation sustainably back to target, including increasing the cash rate further if upstride is materialize. That last, you know, 10, 12 words on that line there, including increasing cash rates, makes September 29th and the first Tuesday of November a real chance that there's still a chance thing. So I think you're right when we started this discussion that the quarterly figure for the third quarter of this calendar year, which is late October, is the one they'll wait for. If there's no sign that it's breaking up, if we are not getting back in areas that matter, then the board still has given itself the room to make things even tighter than they currently are.
SPEAKER_01It's the right messaging. I mean, we've got to be. Yes, I'd agree with that. They certainly can't uh think that we've that we've got the job done because we're far from it. So I think that is the right settings to just keep the consumer a little bit more and business a little bit more nervous about where that directional um data is heading. All right, so Evan, we've got obviously a few slides here that we want to talk to. Let's talk to the trim mean. But obviously, for those people who are new to understanding this, trim mean takes out all of the you know the short-term variances
Why Inflation Is STILL Too High
SPEAKER_01and gives us the sort of core uh inflation data that we want to look at. So it takes out those volatile items. Um and again, we want to try and see this. You can see that that grey bar is between that two to three percent settings, and and this is where we find ourselves.
SPEAKER_02Yeah. And I also bought Ben's highlighted, sometimes it gets mixed in terms of what's more important as a headline or is it trim mean? In the RBA's world, it's trim mean. Um, and so when we're like, oh, you know, we need to get back into the 2% handle and you know, whatever else, it's the trim mean that we need to get back there. Yes, sometimes they'll highlight, you know, we need uh you know inflation back in there, but it's trim mean because that's the more sustainable level, as I said, as Ben said, it's the top 15% and the bottom 15% of each read that gets removed to give you that trim mean figure to remove that volatility. And that little yellow line, you can see, although it's doing a little bit more of a flatter rise, it's still rising, it's not actually dipping down, and that's the concern with this jump that we've now seen back up. Again, as the the statement just highlighted very clearly, the real ramp up in inflation at the end of last calendar year did catch the board off guard. The surprise in terms of how you know robust spending happened, particularly since September, October last year, where several things happened, including the 5% deposit scheme, which is certainly highlighted the government issues. That that has led to this scenario that we have today. And so that's where we sit. So that's that's the the two figures that matter at the headline. But it's the next few charts that I really want to drill into that matter to us. This one scares the living daylights out of me. Like it really, really does. Just how far ahead our core inflation is versus the rest of the world. And I want to Highlight the next nearest to us is the states, right? And that in itself was an interesting scenario, considering all the changes that the Trump administration has brought in and what's happened. We always expected in you know core inflation in the US to go up, and it is and it's starting to rise. It's moving in a way that you wouldn't like it. But we have made no inroads to actually bring our inflation back even close to the you know the top end of a two-handle. We're not even near it in terms of where it is. And you know, you look at where New Zealand currently sits at two and a half percent. You look at you know, a comparable one I always use is Canada. Canada is a long way ahead of where we're at in terms of what with what's sitting there right now. Um, they've got their their stuff backfiring, and they at the moment are having a massive headache with with you know with tariff wars, with the Trump administration. Their economy is actually doing relatively well considering what's going on. So, this for me is the biggest concern is that we are now leading the world on inflation, and that is why we still have an RBA with what we see today that is the probably the strongest and hawkish bank out there, barring the US Federal Reserve. And that is a that's a problem in terms of where we sit.
SPEAKER_01Yeah, and obviously it's a reflection of where we find our um you know cash rate at 4.35 and potentially the risk of of going high. I mean, it's so high that we can't even see the food and energy inflation that's sort of also up in this sort of higher range as well.
SPEAKER_02So on that point, that's a great highlight. If you go to the next chart, I think it's the next chart of the chart after, I'll come to that. So, this is what I really also want to highlight is that the reason
The reason why we’re feeling poorer!
SPEAKER_02we're humming along and why you keep hearing the cost of living crisis and why you keep hearing the pressure on the household, this chart is the most telling one. So, as you can see, that little asterisk down there, what we referred to as life admin, that is rent, property rates, utilities, automated fuel, urban transport fees, insurance, childcare, right? The things that the household has to deal with, cannot get away from. It's running at six and a bit percent. I mean, that's that is a massive headache in terms of what it is compared to the headline, which is 3.94%. But that life admin, they're the bits that are part of it. But if you go to the next chart for me, Ben, and show you what this shows is. That is exactly why we're feeling poorer. Yeah. The reason that previous chart couldn't show you the groceries, excluding food and vegetables, is that actually at the supermarket, food prices aren't moving a hugely big amount. They're actually back at standard numbers. So it's running at, excluding vegetables and uh fruit and vegetables, it's running at just under three. With them, it's running at two and a half percent. So the essential of food is still now back at a level that is much, much more achievable. And it's been there for a while.
SPEAKER_01Interestingly, we're getting shrinkflation and also substitution in some because you know, obviously, the supermarket pricing people are elite. They know when goods move and when they don't move. And and this is showing us that households are really struggling. So we go back and we have a look at this life admin, our insurance premiums, our health costs, uh, you know, some of our education costs, they're all going high.
SPEAKER_02Our you know, moving in two charts ahead, Ben, and let's bring that up because I think you've got exactly the point. And this is the this is where the government now has a problem, is this. So this is breaking down the housing part of the inflation rate, right? So housing makes up a fifth of the total inflation basket. But I wanted to break it down into the components that are actually inside it. And this shows you not just the month-on-month change, but the year-on-year change. Have a look at utilities bills and where that's sitting for 15 and a bit percent. Now that is electricity, don't get me wrong, and that is going to be down to the energy consumption, but childcare moving at 7.6%. If you look at rents, they're not as bad as what we thought they were before, but new dwellings, that's hugely expensive. And if we want to build 1.2 million homes by 2029, which we're not going to do, but until we can get hands on that and actually get a scenario where new supply of housing is actually affordable to do, this is going to be the biggest problem. The RBA cannot move these kinds of things, they don't have the mechanism to do it. And so until regulation comes out, until we can actually allow, you know, to generate a home less than 31 months and build quality, but bring it back to 2015 levels of 11 to 12 months, then all of this is just you and me just basically waxing lyrical. The action isn't going to change.
SPEAKER_01That's right. And I think it's also important to understand there's a lot of labor cost associated in here. So we know that when a government is spending big on infrastructure, it draws and paying, you know, huge salaries in that stop go and all of that other stuff that they're doing in terms of the construction work, that draws all of that labor across to their. So, you know, to bring that labor back, the builders have to pay higher wages, you know, to their subbies and the contractors and so forth, because they can go and earn high wages. And it's the same in childcare to attract the right type of people to look after our children and develop them at their younger ages. We need to attract higher talented people. So the government has obviously then lifted the minimum wage in childcare as well. So but it has a flow-on effect uh in terms of you know, it's not caught necessarily by the business owner, it's passed on to consumers, and that's why that's an important part of that story as well.
SPEAKER_02So and the final part of that story is just having a look at furnishings, household equipment and services, right? So the discretionary part of how the household spend, you can see that is growing anemically at 1.5%. Why? Because we are stopping spending on goods, we are stopping spending on you know, doing that spend for the house because we can't afford to do it. But the rest of that whole metric, we cannot, I mean, you can't do without rent, right? If you're renting, you have to pay what the rent is.
SPEAKER_01The rents are going to go up because there's now no longer negative gearing. So the investor who buys an established property is going to lift their rents. And you know, we're saying to most investors out there, 5% is a good rule of thumb in terms of the administration cost, all the new compliances, the minimum standards, everything that the governments are introducing at the state level all carries an enormous amount of operating costs. So we're passing those on because we can, because there's a shortage of rental, and that's only going to get worse as part of that story. So this is concerning, and that's why we wanted to spend a fair bit of time. So thank you, Evan, for those additional charts, which really do bring home that narrative and that story. Let's pivot now and talk about the unemployment rate and see what's happened there. So, noting that this is uh June data, we get the July data on the 20th of August. So we're just shy of a week and a bit from getting that data. But our seasonally adjusted unemployment rates stood at 4.4% in June, in line with both market expectations and the May figures. The number of unemployed rose by 12,700 to 686,800 from 700, sorry, 674,100 in May, with the number of full-time job seekers increasing by 13,300 to 457,300, while the number of part-time job seekers fell by only 600 to 229,500. Now employment increased by 76,300 to a record high of 14.82 million, surpassing estimates of a 15,000 increase. So that is a big number, and that should also play on the RBA's point around. We're getting employment, right? But we're still getting inflation because everyone's earning, and so they're still spending following the upwardly revised gain of 43,900 in jobs in May. Full-time employment climbed by 29,300 to 10.17 million, while part-time employment increased by 47,100 to 4.65 million. The participation rate ticked up to 67 even for both May figure and also a market expect slightly above the market expectation of 66.7, marking at the highest level since July of 2025. The underemployment rate edged up to 6.5% from 6.3%. Meanwhile, total monthly hours worked across all jobs increased by 5 million to two uh two, sorry, 2.014 million hours worked over that month or that that data period. So look, jobs are feeling okay. You can see we haven't seen uh unemployment move up towards that five ticker, but I do suspect with everything that's happening, there's going to be some challenges in the marketplace. So let's move to uh consumer sentiment. We can see here that the overall number is still very much pessimistic, but we did see an improvement of 4.1 points or point percentage points to a reading of 83.9. So pessimism still dominates as certainly as fuel price pressures and fears of rate rises did moderate during that time. But to Evan's point a moment ago, time to buy a major household item. So you can still see the long-term average is 123.1, and you can see here that it's sitting currently uh in the July read of 86.8. Um, and so very, very sluggish. And then now, obviously, from our point of view, we've got the unemployment expectations. They seem to have eased a little bit, so people feel a little bit more secure in their jobs. Um, obviously, there's been a major disruption in the real estate space, so there will probably be some changes and some flow-on effects uh through those uh tax settings that the government have put out there is stalling and shocked the proper the real estate market. So we're gonna see some changes there. In terms of time to buy a dwelling, uh, you can see there's been a little bit of an uptick there. People are potentially, when others are greedy, uh, you know, you want to be fearful, but when others are fearful, you want to potentially take advantage of that opportunity. So we're seeing a little bit there, but you can also see um house price expectations uh only seeing at 118, but their long-term average has been 130. So that's also deteriorated.
SPEAKER_02So there's expectations that uh that you'll see 27.5% decline in that house price expectation that is the biggest telling story.
SPEAKER_01That is telling you that people expect prices to continue.
SPEAKER_02Which filters back into the top line, which is the family finances next 12 months and the economic conditions the next 12 months. That yeah, those two are moving very closely with that second from bottom line.
SPEAKER_01Yeah, beautifully interwoven story that we're seeing there. And then obviously the interest rate expectations they did ease, but you can see where they were going. So higher interest rates, that's come off a little bit, but people are still expecting um rates are more likely to go up than down in the short term, and I think that's also adding to that concern around housing um, you know, action that we're currently seeing at the moment. So that you know, interesting story that we saw there. Let's now pivot to the business confidence. We saw business confidence in Australia decrease to negative six points in July from negative five points in June. Business confidence um, you know, in Australia has averaged 5.44 from 1997 to 2026. So that is also telling us a little bit of a story there. You can see it sort of ticked down a little bit. So businesses are continuing to be more worried, and you can see this period just before there, where obviously where rates were starting to come down, business confidence and business investment, business conditions, but we are seeing a deterioration in both areas there as well. So that's uh that's not a good healthy sign for the economy in the short term. Uh, let's now move to uh building approvals. So we saw this data come out on the 6th of August. Now, some reasonable
What’s Going on with Property?
SPEAKER_01numbers here. So seasonally adjusted dwelling approvals rose by 7.2% month over month for the for a four-month high of 18,328. So Evan was talking about that 1.2 million. So this is that number that's contributing to that uh in June, confirming preliminary estimates following a 1.6% fall in May. The gains were largely driven by 17.8% increase in approvals for private sector dwellings, excluding houses, so they're units. So you saw approval of 7,138 units, and then approvals for private sector housing, which is the freestanding or semi-datached townhouse type stuff. There was 10,631 of those approved. On an annualised basis, total dwelling approvals were up 8.9%, reflecting a 15.8% rise in approvals for private sector houses, whilst approval for private sector dwelling uh excluding houses declined by 1.5%. Now, this is where it gets interesting. Across the states, approvals climbed in Queensland 33.4%, New South Wales 13.2, and Western Australia 10.7, but fell in Tasmania 22.5, Victoria it fell by 13.9, and in South Australia by 11.5. So we have multi-tier economies operating here. Um we're seeing a lot of those approvals are actually for regional areas when we were studying the data. So that says some of those regional towns are performing well economically, and that's putting people some confidence to go and buy a house in that particular area. So that is going to add to supply of housing in those in those markets. So, you know, that's something that an investor needs to also balance out when they're thinking about uh where they're going to buy for ultimate return. And then, Evan, that led into um obviously, you know, the correction that we're seeing in the property market, where three consecutive rate rises certainly took the momentum out of the market, but the shock of the tax reforms um can't be understated, and it's not fully showing up here just yet in terms of uh this data that we're seeing. So that's why expectations are continuing to keep going. So there was a sharp downturn expanded across Australia. So now what we can tell you that now Perth, uh, based on our data, is now in decline as well. So effectively, all major capitals, I think Darwin's the only one that's sort of scraping out a little bit left of their cyclical upturn. But we're starting to see some of those material changes. We also saw ANZ today come out with a revised number where they're expecting Sydney house prices to fall by potentially up to 15% from peak to troth. And you know, what's what's surprising and disappointing for me about that is, you know, some of this has wiped off if we if we do see broadly speaking a peak to trough movement of around 8%. That's $1 trillion. That's $1,000 billion of property wealth or private household wealth that we're potentially seeing wiped out of households wealth positions. So that is material. We're going to be interesting to see what the government thinks about that uh when it when they go to the polls, both at a state level but also at a federal level. So combined capital cities down 0.9, regional town down 0.2, and nationally down 0.7 for the month. And you can see those quarterly numbers there as well. So let's wrap up the key takeaways, even because I want to bring you in here as well. Because there's not a lot of positive that I've got in here. There's more,
Australian Economic Headwinds
SPEAKER_01there's more um headwinds. So let's look at we've got a challenging economy. Let me roll through them. Poor overall productivity, increased regulation burden, higher energy input costs, higher wages but less productivity, higher and sticky inflation, falling property prices, rising unemployment, rising taxes, weaker consumer sentiment, uncertain geopolitical environment, AI, which has been union-led from a scaremongering point of view, and a record government spending, which is part of propping up the current economy that we've got here. So is there any positive things? I mean, I think employment is probably one area, again, propped up by the amount of record spending that we're seeing across governments. But private sector-wise, I think, you know, there's a lot of businesses that are struggling at the moment out there. And, you know, there's not a lot of of economic settings from a fiscal point of view that excite me about the reforms that we need and the reforms that need to come because all we're doing now is relying on a blunt instrument that is monetary policy to do the inflation uh lifting that we need it to do.
SPEAKER_02So so the way I say it at the moment is that we are we're Europeanifying the Australian economy. So what you've basically put there in Zenza, all those points, is that is very much what Europe has been facing for the last 20 years. And instead of doing something about it, lent into it. Let's also probably highlight that. They very much lean into this concept. Uh and we are showing sides of doing something similar. And again, the caveat is that it's not just to be blamed on the government, don't forget the individuals and the greater population somewhat want this in the fact that we are happy to accept this scenario in the fact that if the government's going to support me, happy days. And that's what I think is the hard part is that the challenge to the individual from a granular bottom-up perspective to fix the points that Ben has got on on the slide is that unless we can start accepting that we need to change how we think about regulation, how we think about you know allowing mistakes to be made that don't end up being regulated out of existence, or mistakes that actually need to be made to allow things to succeed and prosper, which means you know, changes in the employment market, changes what we call employment, how we look at what a service outlay is, etc., the fact that the care economy is sucking up labor that should be used to elsewhere is all part of that question. That's the challenge. And again, that's why you know challenging the extent and where the economy sits is unless we can get out of the eurification of the Australian economy, we are going to face European issues over the next two to three decades. And that is the concern. I want to point this out very clearly. The positive that Australia continues to have, we are geographically thankfully in the right region, right? We have Asia on our doorstep. We are also lucky in the fact that the commodities that we still have are absolutely going to drive us forward. So that has not changed, even with China slowing down and changing. The Indian story is absolutely there. There are other parts of that. So I don't want it to be too negative, Nelly. What I'm saying is that we are now at a challenging inflection point and never underestimate a crisis to change the point we saw in COVID. You know, we are now facing that challenge, is that the economy has finally come to a point where we are going to have to, by necessity, not by choice, change.
SPEAKER_01Because if we don't, the reality is our budget deficits continue to keep ballooning out of control. And then when we do potentially face an unexpected cost like what Europe has, um, with the likes of the US basically saying, you know, in terms of their protection that they were providing, you know, through uh their security protection, uh, through um, you know, the um, I'm trying to think of its name. Uh I've gone blank. Um, the uh the unilateral agreement on security for for Europe. Um NATO. Thank you. The NATO. So they're saying we we don't want to play a bigger. So now Europe has to find hundreds of billions of dollars to ramp up their their um you know defense forces um to help protect themselves against you know threats that whether they're Russia or or or somewhere else. And that's money they haven't got. And so ultimately that then leads to higher taxes as part of that story. So thank you for helping me out there with uh the NATO. Some tip of my tongue, just couldn't get it out. So so we we've got some challenges here, people. And now, again, greatest country in the world. Um, as long as we don't lose aspiration, as long as we don't get too comfortable thinking that the government has to fix our problems, because if we keep putting our hands up and keep voting for a government that keeps wanting to give us more, uh we'll end up like Argentina did for a hundred years, um, which is basically a banana republic. Uh, but anyway, we'll move on from that. Let's uh let's now move to the Americas. Um, and I'm conscious, you know, what we're gonna do this time, I'm gonna change it up a little bit. All right, because obviously Evan's
US Economic Update
SPEAKER_01uh in Singapore on business and also a short break. So we're going to just go through um and just highlight some of the talking points rather than going through each particular item uh one by one. So, what has changed in the Trump experiment since the the uh the last June hike, uh not necessarily the May hike. We saw Iran, Middle East conflict, we saw inflation uh remains elevated, but uh is easing from its energy shock peaks, but that's sort of up and down. Labor market weaknesses emerge with July, employment unexpectedly contracting. Um so then we've got this new tariff policy um that replaces the old one that was struck out by the um the uh the the courts over in the US. Yep, thank you, the Supreme Court, and then the trade policy uh is adding uncertainty, both uh growth and inflation. Uh that's global growth and inflation as well. Now, on a positive note, the investment continues to underpin uh the AI investment. That is US economic growth and market optimism. Um, equity markets are continuing to buy the AI future story, where we're for the first time in history manufacturing intelligence, where that leads us. Two is going to be interesting in terms of consumer and business confidence actually spiked in July. I suspect that was because of the story around Iran that they had a deal and now they don't have a deal and things have escalated further from that. And on top of all that, Evan, we've got the US faces a difficult balancing act between controlling inflation and protecting employment. Let's talk to that story.
SPEAKER_02So I think the Fed is the biggest discussion point out of all this. So the last Fed meeting, although there was a hold, the dissent has grown. So there's three of them now. Uh three dissented, nine voted to hold. Those dissenters are calling for hikes. And I think that is a growing, growing trend that has now gone from one to two to three in the three meetings that we've got there. They are all voting members, those three dissenters, and they are making all the signs that at the moment the discussion point in the US around inflation is a big problem. And Kevin Walsh, who came in on the whole idea that he was going to follow the president's idea of cutting rates, is being swamped as we expected. The institution still works. That he is still just one vote, and he is still just one voice on the board, and the board is getting very, very concerned that unlike here, where we have a target range of 2-3%, the US has a target flat of 2%. And they haven't got there from a they haven't got here in the post-COVID world, they got close, they got down to 2.3%, but they haven't got there. It is back up in the high twos, early threes. It's also showing signs, and the biggest problem for the US in terms of that there is the AI revolution story, along with what Ben has spoken about before with the defense spending, that's actually not just a US story, it's a global inflation story. It's putting upward pressure on all forms of services. So they're facing a scenario. Europe is the other one we'll talk about in a minute, but the defense spending at the moment, according to the IMF, is adding around about 0.5 of 1% to global inflation. And the US story is even bigger than that because, again, the Middle East war is actually causing them to have to ramp up defence spending domestically to keep up with the amount of usage they're having there. So the board, for me, this is the biggest story out there, is the board has now got descent and descent to the upside. That's why the US dollar is quite strong. You've got 30-year bonds in the US now at the highest they've been in five years. The final part of the of the issue is you then have the midterms. And the next time that you and I meet, yeah, the next time you and I meet for the September meeting, we will be in full swing for a US midterm election. And who knows what could be said during that next period?
SPEAKER_01Correct. I mean in terms of who controls the lower house and the Senate is going to be an interesting um you know play out there. Now, I I you know, I suppose Trump is not necessarily getting carte blanche support uh from the Republicans, but certainly having uh you know the House uh House of Reps in the wrong order in terms of the voting there, that's gonna potentially make his economic plans harder. I mean, his biggest misstep, uh, as we all know, has been, you know, this invasion of Iran or this uh you know sort of uh freedom of Iran sort of story that he was telling and taking their new capabilities out. But that has completely been the biggest misstep of his of his tenure, and and you know, ultimately it's gonna potentially cost him uh the government. All right, let's move along now uh and take a look at China uh in terms of what we're seeing in the in the Chinese market. Interesting story
China Economic Update
SPEAKER_01in China. There's some you know good things to be happening, such as the export sector remains resilient and continues um to see supportive growth over there. Inflation pressures have eased, um, you know, allowing policy to remain accommodative so they can do more stimulus. Economic growth has slowed, is the one sort of concern that they have in Q1. Property price and property market weakness continues to undermine household confidence, and Beijing is increasingly likely to rely on fiscal stimulus to support activity. So there's not really a lot that's changed, you know, when I look at this. The the Chinese consumer is still not out of the woods. Um, they are still so heavily reliant uh on their technology expectations in terms of electric cars and all you know consumables, electric consumables, but that's and obviously clothing and all of those other things that they export around the globe, but that they are still challenged in terms of what's happening uh on a domestic front.
SPEAKER_02Yeah, and I the only other thing that's hard to understand at the moment with China because they're not showing us is just how much the Middle East is affecting them. So how much of an impact has the war had on them? Yeah, and so the fuel, but it's also the indirect stuff. So don't forget, you know, how much petroleum products are in all of the things that they manufacture. Yeah, the plastic the plastics and all those, you know. So all things look still okay, but there is this underlying belief around particularly the Western world, and the Western world has got China wrong, you know, probably for the last three decades. But we do know that they're they're feeling that pressure. The electrification is the other question. Like the the speed at which they're doing it is astonishing. It is going to be a poster child of how you can revolutionize your economy on on an already you know revolutionised economy. You know, you look at what's going on that now EV vehicles, it's almost four to one, is what I last saw the the figures as with regards to the you know an EV to an ice engine. As far as China's concerned, by the end of 2030, they do not want to be selling ice engine cars, and by ice I mean internal combustion. So that that is the other story here, is that you're also China never leave lets a crisis go to waste, it never has. And you know, the movement toward the electrification, the impact it's having on their health systems, fascinating. The air quality in somewhere like Beijing, Shanghai, Guangzhou is incredible in terms of what they've done.
SPEAKER_01So the improvement that they've done there through electrification, as you're saying. Yeah, and look, that they they understood 20 years ago that you know energy production is a a competitive advantage if their cost per kilowatt in China is embarrassing to the rest of the world. And if we are manufacturing intelligence through data centers and the like, through large language models and so forth, they they they are just killing it. They're doing all the right things in terms of you know what they're looking at longer term. And of course, you know, when you when you're a communist country, well, I'll take probably offense to that, saying that they are communist country, but when you're you know when you're run by an authoritarian state, then effectively you don't have too many people you know debating about what can change and what can't change, the change just happens and everyone just has to go along with it as opposed to democracies. We've got to debate it out in terms of that. But they are they are well positioned medium to longer term in regards to their energy advantage. Now let's hope the world catches up in terms of through nuclear. Um, you know, they've even got thorium plants running at the moment. If you don't know what thorium uh like it's just, you know, they've cop they've they've taken what was released out of the US 20, 30 years ago and copied that those patents, um, you know, uh uh permission-wise, they were giving, and then they've made it, they've created what was originally theory, they've now made um electricity out of thorium, which is abundantly available across the planet as well. So very interesting in terms of their what they're doing there, but still the consumer, their property market, uh, their unemployment rate is still uh actually that's been improving a little bit as well. So, you know, so certainly some some more ticks and crosses for China at the moment. Let's now have a look at the Eurozone. Um, you did mention it earlier there in terms of you know what we're seeing uh in the euro
Eurozone Economic Update
SPEAKER_01area, Evan. And so what's changed really is you know, growth has rebounded. So from the contractionary to expansionary, just you know, that this this economy just ticks over, you know, almost like in in first and second gear uh because of their economic settings and their policy settings. Energy market fears have eased off the back of that. AI and infrastructure investments is supporting activity over there. Fiscal spending is becoming a more important growth driver. So the problem with that is the debt that it brings off that. But again, we keep talking about the long-term structural growth challenges still remain. Um, and obviously, productivity based on the over-regulation that we're seeing over there as well through the EU remains weak. Um, and that obviously then leads into they've got a super high reliance still on those export markets, and that and the problem they've got is that China is beating them uh in terms of you know competing and winning in those other export markets outside of the US and and Europe is still very heavily reliant on selling into the US as well. So something to be really mindful of when we look at the Eurozone.
SPEAKER_02Yeah, and so it's the big three, too, right? So you're talking about Germany, France, and Italy. They are still export-driven uh economies. You look at particularly France and Germany, high high-end manufacturing. But if you look at you know European car manufacturers, they are facing a reckoning. You look at what Volkswagen is currently facing, you look at what Daimler is even having to face, the China story is their problem. They have now a disadvantage in terms of what it is. Their brand is still holding them in reasonable stead, but the brand upcome from the Chinese revolution has the Japan ink of the 50s and 60s written all over it, and that's the problem. So the the Eurozone challenge is again: how does it deal with an economy that is highly regulated, very, very regulated, with also 27 different competing ideas, despite the fact they try and work as one unit. Yeah, the Eurozone will be the fascinating case over the next decade about where it goes, the fact that you know they do at least have some growth back, but overall they are facing a conundrum that they've been they've known they've been facing for a long, long time, but it is coming to a hand at a much faster rate than I think they realize themselves.
SPEAKER_01Yeah, and obviously, you know, the the the the whole nationalist policy and and immigration and all those other things are are resurfacing as part of this stagnation um that's sort of going on and and the support services that then come off the back of that. So definitely some challenging times when it comes to the Eurozone, but nothing new that we've expressed there as well. Okay, so let's round it out. The overall wrap, um, let's go through um what we're talking about here. So compared to the June story versus the August
What happens next?
SPEAKER_01story, the US has got Iran, inflation, and tariffs in the June story. They've still got Iran, inflation, and weakening jobs is really the August story. Uh, in terms of China, the property stagnation continues, um, waiting for stimulus and and a rebirth of confidence in their consumer there. The euro area is obviously recession risk was evident in June. They've got a moderate recovery and a little bit of resilience uh that's happened there. And with the Australian market, as we rounded out for your final comments, Evan, uh more hikes possible. Uh maybe a hike, it's probably not two now, but certainly one is on the cards. And then you can see we have got a stalling economy, we've got rates staying higher for longer. And you know, I put that back down to the fiscal policy settings that that are being delivered for us are not making or setting us up for the dynamic economy that we need to be. Um, we're just moving too slow in our reform agenda. Um, uh final word for you, Evan, as we as we wrap it up.
SPEAKER_02I think the most important thing, therefore, is to put October 29 in your diary, which is the Q3 release of the inflation figure in this country, because I agree with you. We are less likely to see two more rate rises. I don't think they have written off us one more, and that therefore means that that quarterly figure is becoming very clearly the pace to be they're okay with the fact the economy is slowing down, they are okay with the fact that house prices are going backwards because it's making their job easier, it's not going to make the job, the government's job any nicer. But that, you know, if things continue to still hover above three, I think you've got a board that is willing to go a bit harder than previous boards have done before.
SPEAKER_01Yeah, and if I put my property hat on, um, it's very clear that we're moving into a correction phase of the market. How deep that correction lasts for and how how you know f further it goes down is really a product of the economic performance of the economy and the jobs, but it's also a performance in terms of the lack of supply. So there is there is a cushioning area there in terms of the supply story that we currently have. And and again, you know, uh when Bryce and I have spoken about these over the years, it's like um, you know, it is an opportunity for some out there if you if you're in a position to take advantage of these weaker markets, the the buying opportunities are very good out there. We're already seeing that in terms of some house I was thinking of upgrading um into a more significant location or better location and a better home. So we're doing a lot of work in that space with our clients at the moment. Um, we now do buyers agency services in that area as well. So, and we're still obviously got our core investors who see opportunity in this market. So, if that is someone like yourself, uh then please uh make sure you get the opportunity to reach out to us um and have a chat with our property planning team or our mortgage broking team to see where your situation lives for you. Uh, but until uh next week or I sorry, next next update, which is the end of September, 29th of September. Always remember knowledge is impairing, but only if you act on it. And obviously, our our disclaimer um is here uh to uh to practice as well. Until next week, mate. Enjoy the rest of your trip in uh much and and bye for now.
SPEAKER_00Hey folks, Opti here, your smart money sidekick inside more. Just one quick thing before we sign off. If you're new to the property catch community, welcome. One quick tip to help you get the most value from the show. Our first 20 episodes cover the foundations we build on every week. And yes, listening on one and a half speed is totally acceptable. If you're short on time, download our free binge guide. It distills those episodes into one easy read with heaps of visual diagrams, alongside free tools inside more, your all-in-one financial home, to help you organize your money and plan your next best move. Check out all the links in our show description. And just a quick reminder before you go anything we cover on this podcast is general in nature. It's not considered to be financial advice, and we certainly recommend that you seek out professional advice before making any financial decisions. Once again, everything mentioned is linked in the show description. Ready when you are. Catch you next week.
