January Observations

Interest Rate Outlook

November inflation showed an uptick from the October drop for an annual pace of 7.3%. This firms the outlook that the RBA will look to increase rates by at least another .25 basis points at it’s upcoming meeting in February. This would potentially bring the cash rate to 3.35%. Currently the major banks have forecasts rate peaks of 3.35% to 3.85% in May 2023.

We are currently seeing best home loan variable rates around the mid 4% mark and as high as 7% in some cases.

Inflation Outlook

As mentioned, inflation increased to an annual pace of 7.3% in November. The forecasted peak of 7.75% is in question as anecdotal evidence suggests there is price relief in some sectors including building and freight costs. Wage costs continue to be high with a tight labour market.

House prices

Data has shown that Australian house prices have suffered their deepest correction on record. CoreLogic puts the peak of the market around May 2022 and the current decline was achieved in less than half the time of the previous record. With many fixed loans coming to the end of their fixed period this year, there may be some further downside in the market in the short term.

However lower home prices may not necessarily mean that people can get into the market easier. This is due to reduced borrowing capacity for borrowers due to income not growing at the pace of inflation and higher repayments because of higher rates.

China

Some good news out of China with signs that some of the trade bans on Australian goods may be lifting. This is in conjunction with the re-opening of China following their zero COVID policy. This may mean good news for Australia as China remains our largest trading partner.

Upcoming Lodgements Dates for January:

• 28 January –Pay Superannuation for December quarter wages
• 21 January – Monthly BAS for December (may be extended in some circumstances)