Qantas eyes higher fares; more banks tip rate hike; Bill Gates’ AI warning
News in brief
International aid is being mobilised for Nepal after devastating flash floods along the Nepal-Tibet border, with India, China and the US among those providing emergency assistance. Australians are among the hundreds of people missing.
Australian household spending rose 1.1% in July, the third straight monthly increase, and was 7% higher over the year. But higher prices explain some of the growth - fuel spending, for example, rose even as the amount of fuel bought fell sharply.
New research suggests music can have a surprisingly big influence on shoppers, with 40% saying they’ve walked out of a venue because of the soundtrack. Volume matters most, while younger shoppers are particularly quick to spot generic or “stock” music.
Meta has agreed to pay up to $US18 billion to settle claims from dozens of US states that Facebook and Instagram harmed children. It will also introduce stronger protections for teenagers, including default daily time limits, overnight notification blocks and greater parental controls.
Bill Gates says governments may eventually need to deliberately protect some jobs from AI, even where machines are capable of doing them. He warns entry and mid-level jobs are particularly vulnerable, with increasingly capable robots likely to threaten construction and hospitality roles by the end of the decade.
Fear-o-meter
Three of the big four banks now expect another rate hike this year. Belinda Allen, Head of Australian Economics at CBA, explains why the bank is now tipping a November increase:
Our previous call for the RBA to remain on hold this year was based on the view that inflation would continue to ease as growth slowed. That macroeconomic backdrop remains broadly intact: growth has slowed from an above-trend pace, the housing market has deteriorated, the labour market loosened (but is still tight) and there have been some signs households have pulled back on spending.
But the path back to the RBA’s target band was always expected to be gradual and left little room for upward surprises to inflation or growth. We have been flagging for some time the need for additional tightening if inflation proved more persistent and growth more resilient. In the end it was the persistent inflation piece of the puzzle and our judgement of the RBA reaction function that has seen our call change come to fruition.
We now expect the RBA to hike the cash rate in November by 25bp, to take the cash rate to 4.60%. The risk sits with an earlier September hike.
Wednesday’s CPI data was always a risk. We had flagged that volatile items was the main reason why inflation in the June quarter was lower than expected and a bounce back was to be expected. However, the July CPI surprise was broader than simply a reversal of the unusually weak fuel and travel outcomes in June.
Fear & Greed Q+A today
On Wesfarmer's full-year results, what the cost of living crisis means for Bunnings and Kmart, and how the company is using AI to improve productivity and encourage customers to spend:
“We've launched these agentic commerce tools on the Bunnings website called Buddy. So there's an AI shopping assistant, if you like, called Buddy on Bunnings. We've got Ollie on Officeworks, and we've got Joy on Kmart. What we're seeing with those tools is, as a customer is interacting through those tools, we're seeing a two to three times uplift in conversion to sale. So that's already driving more conversion to a sale than you would typically have from ordinary search.
Similarly, it's resulting in higher transaction value. So people are effectively buying more when they're using these tools. And the reason they're doing it is these tools actually — they're not just searching for a product, they're providing the customer with a solution.”
... There is no doubt we are seeing cost pressures in our business. We've got increased transport costs from fuel surcharges. Similarly on ocean freight for the import of our product, we're seeing fuel charges and surcharges there.
If you've got scale and you can lean into driving productivity and efficiency, you're going to be in a much better place than anyone else in terms of trying to drive those cost savings through the business.”
Three of Australia’s biggest consumer businesses have reported results, offering a snapshot of where Australians are spending - and where companies see room to make more money.
Qantas' underlying pre-tax profit fell 14% to $2.06 billion, its lowest in four years, as the Iran conflict pushed its fuel bill more than $600 million higher. But demand remains strong: Qantas expects revenue to grow 8% to 10% this year and has indicated fares could rise further. It’s also adding more premium seats, where international revenue is growing twice as fast as economy.
Wesfarmers is trying to bring some of Kmart’s Anko success to Officeworks, where earnings fell 22%. It’s shifting private-label products onto Kmart’s direct-to-factory supply chain, cutting out wholesalers and taking greater control over product design and prices. Kmart and Bunnings both grew sales and earnings.
And weight-loss drugs are becoming a growth engine for Chemist Warehouse. Booming demand for GLP-1 medications helped Sigma Healthcare lift normalised profit 22%. The bigger opportunity is bringing customers into stores, then capturing their spending across other health and wellness products.
Greed-o-meter
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