Inflation prompts rate fears; Domain: house prices to fall; record heatwave hits Europe

Inflation prompts rate fears; Domain: house prices to fall; record heatwave hits Europe

News in brief

Domain has released its annual forecast for house and unit prices over the next 12 months, and it isn’t good news for homeowners in Sydney and Melbourne.

 

A third case of H5 bird flu has been confirmed in another migratory seabird, this time found in South Australia, and another suspected case has been identified in Western Australia.

 

One Nation leader Pauline Hanson has repeated her call for Australian monoculturalism and wants to “bring back Paul Hogan and Norman Gunston”. She also says that the Socceroos “represent my vision of a monocultural Australia”.

 

The closure of the Strait of Hormuz has stranded more than 1,200 cargo ships carrying goods worth an estimated $US125bn, according to new data.

 

There is a heatwave in parts of Europe, with France bearing the brunt of the high temperatures. More than half the country is experiencing “exceptionally high heat”, while Italy and Spain have also been hit with soaring temperatures.

Fear-o-meter

EY chief economist, Cherelle Murphy:

 

Underlying inflation as measured by the trimmed mean accelerated from 3.4 per cent in April to 3.6 per cent in annual terms, with the six-month annualised growth rate at 3.5 per cent. This will concern the Reserve Bank Board because it suggests inflation pressures are proving sticky, even as headline inflation has eased slightly.

 

While the Australian economy is showing signs of weakness, including a slowing in consumer spending and weak sentiment in the housing market, today’s inflation data supports our view that the Board will likely need to tighten monetary policy further this year.

 

With the full impact of supply shortages and higher global prices for commodities yet to be felt in downstream goods and services, upside inflation risks remain a key concern for the RBA. These risks reflect existing capacity pressures in the economy, uncertainty around the conflict in the Middle East, and firms passing on their higher input costs. Even with a peace deal in the Middle East, a return to normal supply conditions is likely to take months.

Fear & Greed Q+A today

On the current downturn in house prices, how bad it will get, and why homeowners shouldn't panic just yet:

 

“I don't think we should be particularly worried about house prices in a longer-term sense. House prices have continued to rise for a very long period of time, and you'd have to be a pretty brave soul to bet against the Australian housing market from a long-run perspective.

 

But what we are seeing right now is a short-term cyclical downturn, something similar to other downturns that we've seen more recently. If we look back at 2023, we saw quite a major downturn in Sydney and Melbourne during that period of time, and again in 2019 post the Banking Royal Commission.

 

This downturn is probably a little smaller than both of those. And what we know is that after both of those downturns we continued to see pretty strong price growth in Sydney in particular. So we would expect a recovery on the other side. No need to panic at this point.”

Underlying inflation rose more than expected in May, increasing the chances of another interest rate hike later in the year. The headline rate was lower than expected but the trimmed mean rate – which is the one the Reserve Bank focuses on and excludes the most volatile items – wasn’t so impressive.

 

On that basis, inflation was up 0.4 per cent for the month, above expectations, and the fourth consecutive month of higher growth. For the full year, headline inflation is running at four per cent, and underlying is at 3.6 per cent, according to the Australian Bureau of Statistics.

 

The second-round impact of higher fuel prices is flowing through the inflation data. There was a jump in the prices of fruits, dining and take-out, and milk – all products that rely heavily on transport. It was the same deal with housing where new dwelling costs jumped 0.9 per cent. That looks like tradies were adding fuel surcharges and passing on higher material costs.

Greed-o-meter

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Source: AMP, ABS

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