Inflation Is Entering Uncharted Territory – Forbes Advisor Australia

Over the past few decades, you can always count on the fact that the prices of clothes and electronics have not gone up. The price of a computer or a pair of jeans is the same as it was a century ago

Just look at these ads from almost 30 years ago. The price tag won’t surprise you if you see them today:

Source: Trove

In 1993, a computer cost $1500 to 2000. You can find a mid-range computer for a similar price now, and it will do much better.

Trove

The consumer price index emphasizes how much value we get for our money these days. It shows that in these changing trends, the prices of some basic items are falling slowly. The bars in the chart below show changes in the CPI compared to last year, and it shows three categories that have seen no price increase: women’s clothing, computers and home appliances.

Homewares are interesting things. When the above ads were published, people placed healthy food items in special walnut display cases. But most families that were established in the last 20 years will not have “good food” that they are not used to.

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So we’ve had falling prices, as the chart above shows. And hold on to the second. Enter the last bit of the diagram. upgrade. Wow. That tells us something important. Prices for these articles no longer behave as they have for the past two decades. The recession is over. Instead, they rise.

Even these models—where Moore’s Law and the rise of Chinese manufacturing are keeping us from high prices—have not been able to withstand the extremes of inflation.

That sends a message. Free money spreads. There used to be a mix of rising and falling, but now it’s almost as if it’s rising. Products and services, imports and housing. Higher costs for fuel, rent, labor and shipping mean almost every brand faces higher prices in 2022. has nothing to do with sales and anything to do with aid).

Coming to the RBA

Government rates have risen significantly in Australia so far this year: from 0.1 per cent to 2.85 per cent. But the government’s inflation-adjusted interest rate is still negative, meaning you can borrow money now for a year and pay off the loan at a lower rate.

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At the next meeting, in early December, another increase to above 3% is considered as a possibility, according to the market price, although the RBA pause is not out of the question.

A December hike was seen as a high probability in the past few weeks, ahead of the latest US inflation data, which surprised the market by showing a mild increase from 8.2 % per year to 7.7% But be careful. The figure is drawn from the lower used car prices. Australia’s CPI does not include secondary goods.

What’s more, our economic system is running on a very small scale compared to America’s. Inflation rose later and the central bank reacted later. It’s like the way movie releases work—America is seeing shows now; we get it in six months time.

There is no guarantee of falling CPI in Australia anytime soon – indeed the Treasury and the RBA still believe we are in an upward trend and price growth is still continuing.

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December Rate Rise

Stocks rose sharply and the U.S. inflation rate is falling because rate hikes are bad for asset prices. But as the US Fed’s Chris Waller said while speaking in Sydney this week, “the market seems to have gotten way ahead of this, rather than this single CPI report.”

Noise affects all economic data and surprises like that can be statistical, not ground truth.

With the RBA Board not set to meet in January, the chances of them giving up on a December rate cut are slim, unless of course unemployment jumps. If they go up, if the language used to describe their situation is aggressive, expect stocks and housing markets to be soft in response.

House prices show a different pattern than clothes and computers. They have risen significantly in price over the past 30 years, but the price growth is suddenly negative. You can make the case that households invested whatever money they made in the stock market into improving the housing market. But now the process has changed.

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