with a 50 basis point increase in the cash rate target to 0.85 per cent, and indicated inflation would peak higher than the 6 per cent forecast in May.
“We’re obviously going through a turn in the business cycle. We’ve got some external shocks that are coming through that are negative for the economy, on the supply of commodities in particular, but also supply chain disruptions that are feeding through to inflation.”Dr Hunter said inflation and higher interest rates would lead to lower growth in household spending, which would feed through to a reduction in planned business investment.
Falling house prices would also contribute to lower household consumption growth through the “wealth effect”, which is the tendency for people to spend more when they feel wealthier and cut back on spending when they feel poorer. Centre of Independent Studies chief economist Peter Tulip said Australia’s 3.9 per cent unemployment rate was unsustainably low, giventhat the non-accelerating inflation rate of unemployment sits between 4.5 and 5 per cent.
The markets veteran said valuations for technology shares were still expensive, despite the 29 per cent decline in the tech-heavy Nasdaq index since its November peak.“It hasn’t even got back to where it was pre-COVID,” Mr Delaney said. “These tech bubbles, and there’s been many of them in history ... They take quite a few years to work off. It doesn’t just happen in six months.”
“At the peak of COVID, the US Fed Funds rates was 0.25 per cent and the US 10-year bond rate fell to as low as 0.7 per cent. We can’t build retirement savings on those very low levels of interest rates,” Mr Delaney said, ahead of an appearance at an Australian Institute of Superannuation Trustees conference on Wednesday.
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Source: FinancialReview - 🏆 2. / 90 Read more »