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RBA tells workers to take a “real” pay cut to help the economy | Property Insiders [Video] - featured image
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RBA tells workers to take a “real” pay cut to help the economy | Property Insiders [Video]

Reserve Bank Governor Philip Lowe has been keen to share his views on what’s ahead for inflation, what he’s planning to do about it and what is likely to happen to interest rates.

Only last year he said the RBA wouldn’t increase interest rates until they saw signs of strong “real” wage growth.

But last week he told workers that they should not be looking for wage growth to match inflation, in other words, if they don’t accept cuts in “real” wages, then their greed will be responsible for a level of inflation that would be difficult to control without sinking the economy.

But Philip Lowe also reassured us that rapid interest rate rises will not tip the nation into recession.

We unpack this plus lots more in my weekly Property Insiders chat with Dr Andrew Wilson, chief economist of My Housing Market.

Across-the-board wage hikes a ‘risk to economy’: Philip Lowe

Even though inflation is running at 5.1 per cent, and is tipped to hit 7 per cent by the end of the year, Reserve Bank Governor Philip Lowe has said he wants to see wage increases that “start with a three” and that “if wage increases become common in the 4 and 5 per cent range … then it’s going to be harder to return inflation to 2½ per cent”.

As unions push for more wage rises after the Fair Work Commission’s minimum wage hike this month, Dr Lowe warned of the ­potential for a wage-price spiral taking hold, which would necessitate a slower economy and rising unemployment to bring it back under control.

Wage

Dr Lowe also warned that Australians should be prepared for more interest rate increases, and there was no “preset path” for rates and the RBA board would be “watching household spending carefully”.

Dr Lowe pledged not to repeat the costly mistakes of the 1970s stagflationary period, saying he was “committed to doing what is necessary” to squash inflation ­before it became entrenched in the national psyche.

A lesson from the 1970s is that if an inflation shock shifts people’s expectations about the ongoing rate of inflation, it becomes harder to reverse,” he said.

He said further:

“Applying this lesson to today, it is important that the higher rate of inflation this year does not feed through into ongoing inflation expectations.

If it did, the period of higher inflation would persist and it would be more costly to reverse.”

Watch this week's Property Insider video to hear both Dr Andrew WIlson and my thoughts on the wages, inflation, interest rate spiral that could occur.

Headline CPI of 7% by end of the year

The RBA has upgraded its inflation forecasts, now seeing headline inflation at 7% by the end of 2022.

The upgrade was on the back of higher fuel and energy inflation and along with the low level of rates was a key factor in the decision to move by 50bp in June.

The current major drivers of higher inflation in Australia and globally would be an unlikely source of a sustainable lift in inflation but are still likely to keep pressure on inflation in the near term.

The peculiar inflationary environment of the past 18 months can be described by 5 main themes:

  1. High goods spending into constrained supply.
  2. Increased demand for residential space/property.
  3. Frictional reopening pressure as pent-up demand faced reopening frictions and ongoing pandemic impacts across service and travel industries.
  4. Most recently, additional large energy and food price shocks emanated from Russia/Ukraine.
  5. Reduced labour supply & tight labour markets.

Watch this week's Property Insider video to hear both Dr Andrew WIlson and my thoughts on inflation.

NSW Stamp Duty reform

First-time home buyers in New South Wales will be able to avoid paying stamp duty when they buy a property from January 16 next year, under a new government plan.

Instead of paying the lump sum, eligible first home buyers purchasing properties for up to $1.5 million will be able to choose to pay an annual property tax instead of stamp duty.

The property tax will only be payable by first home buyers who choose it, and will not apply to subsequent purchasers of a property.

Stamp Duty

The annual property tax payments will be based on the land value of the purchased property.

The property tax rates for 2022-23 will be:

  • $400 plus 0.3 per cent of land value for properties whose owners live in them
  • $1,500 plus 1.1 per cent of land value for investment properties.

These tax rates will be indexed each year so that the average property tax payment rises in line with average incomes.

We want to lower the barriers to owning a home for first home buyers seeking a place of their own,” Premier Dominic Perrottet said.

In the past two decades, the share of first home buyers under 35 years of age has declined from 67% to 61%.

Watch this week's Property Insider video to hear  Dr Andrew WIlson and my thoughts on how this will underpin certain market segments - especially apartments.

Early Winter Auction Markets Holding Steady - More or Less

Auction markets continue to hold the line with the final weekend in June again producing steady results for most capitals.

Listing numbers however continue to weaken with the usually distracted winter market impacted by fragile sellers’ confidence in the face of recently sharply rising interest rates - with more likely to follow.

The national auction market reported a clearance rate of 65.4% at the weekend which was higher than the 2-year-low 62.7% reported last weekend but significantly lower than the 82.5% recorded over the same weekend last year.

Auction Clearance Trends

About Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au
30 comments

Thanks for your comments Andrew and yes regional property has performed fantastically over the last 12 months, but over the long term they have underperformed capital city properties. But there's not a fair comparison because great regional locations ...Read full version

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I fixed a lot of loans 6mths ago for low 2% company/SMSF properties, I suspect rates to slightly increase. They have raised rates with major lenders fixed already so I’m perplexed why you insist they won’t rise? Clearly they are. You mentioned CBD/c ...Read full version

1 reply

You are right, the banks are covered by mortgage insurance and the borrower is responsible for their debts. Having said that people should develop good money management skills and not borrow more than they can afford to repay. It's unlikely the int ...Read full version

0 replies
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