May Observations

Interest Rate Outlook

Against consensus, the RBA raised rates to 3.85% in May. Based on cooling inflation (to an extent, see below) and other evidence of slow downs in the world economy, most thought this would give the RBA enough reason to pause again. The Federal Reserve even raised rates to a 16 year high of 5.25%.

Central banks continue to try and thread the needle of reducing inflation without tipping the economy into recession.

To give you some perspective, rates have not been this high since April 2012 – over 10 years ago now. For a lot of our clients in their first business, they would never have seen interests rates this high and have to navigate that in their business.

Whilst the path is clearer it may be time to start thinking about other ways to reduce inflation outside of interest rates which do not appear to be working.

Inflation Outlook

The monthly CPI indicator annual movement rose 6.3% in March, down from 6.8% in February.

Whilst on the surface it inflation appears to be dropping it is proving incredibly sticky. Worries are now around the extreme housing shortage in Australia providing upwards pressure on rents, wage increases being demanded and other stimulus being called for which traditionally increase inflation.

Other notable items

• The May budget looks to be a big one with a lot of material changes (unlike the previous few budgets)
• Confirmation that some pockets of Australian housing appear to have picked up as per Corelogic reports
• A flight to security for deposits sees regional banks in the US under serious pressure

Upcoming Lodgement Dates for May:

• 15 May – Lodge 2022 tax returns for all entities that did not have to lodge earlier (please get in touch as we have sought extensions across the board for our clients who have not lodged as yet)
• 21 May – Lodge and pay April 2023 monthly business activity statement (IAS)
• 26 May– Lodge and pay BAS for those lodging electronically