From a property investor, should we be worried about the trimmed mean looking at that figure, or should we look at the headline number?

Yeah, yeah.

I think if you worry about interest rates, that's the number that you should worry about.

The headline number is a little bit, I would say, volatile because it gets skewed by fuel or electricity.

For example, the past few years, we've had electricity rebates from the government.

So every time the rebates phase out, you see a massive spike in inflation just because the bill goes up versus the low prices when you get the rebates.

Same with the fuel excise that we had between April and August.

... which is another part which has to be part of that whole equation.

Mm

... they're not getting the same sort of valuation that they hoped for, um, when they first tried to IPO, basically.

So that does tell us that, you know, some investors are skeptical in, in, in the prospects of how much money these tech companies can make given that massive amount of CapEx that's being floated around.

Um, and yeah, I do, I, uh, yeah, despite being an AI opti-optimist, I am, I do, I am aware of the fact that there are quite a lot of risks related to this.

So I mean, the biggest risk is basically are they really gonna make that much money quickly? Um, because even if you make money, say if you think about Microsoft, a lot of their revenues are still coming from the traditional areas, AKA cloud computing, selling the basic Microsoft Word and Excel, um, softwares to company rather than from Copilot chatbot.

So, so the revenues will come, but, but they won't come that quickly to actually m-make whole of the, of, of all the debts that these companies are taking on.

And I would say that's basically the biggest risk to a lot of these hype around IPOs and around these AI companies.

Yeah.

Mm.

And if you're an investor going into the property market at the moment, wow, sorry, a bit of a tough time for you, you know, because you don't get the tax treatment anymore.

But I guess in certain markets, you probably can get a bit of a bargain now that everyone's, you know, not looking at the investment market right now.

The idea of investing is that you have to buy low and sell high, so if you can find something that's underloved and undervalue, I don't think it's still a bad thing to get into the market because over the longer term in Australia, we still have a structural undersupply of housing in Australia, which we put at around 200 to 300,000 dwelling units.

Dwelling approvals are going down, yet population growth is still holding up at 1.5% every single year.

Given the way that the market is at the moment, and I know it's not a singular market, but given the w- the trends that we're seeing at the moment, what theoretically should be happening to rents in the coming months?

I think that rents should still remain quite high in the coming months, and again, the simple reason is that there's a little bit of a supply shortage in Australia.

The best indicator for rents is actually vacancy rates, so basically how many, you know, properties are sitting vacant in a particular market.

So what do you think that means for the RBA then? Because we spoke, I think, was it late last week or, um, yeah, I can't remember, but I think it was late last week, right? Have you changed your tune on what the RBA does given the data we've had this week?

[laughs] Well, definitely not the majority in the economist community at the moment.

Right now, financial markets are only pricing in roughly a 10% chance of another RBA rate hike in August, and the cumulative probability of any other rate hikes this cycle from the RBA is only around 50%.

That being said, though, as- at AMP, we are still thinking that there's plenty of reasons why the RBA probably would hike rates at least once more this cycle, and that's going back to that inflation stories.

I think the details from that inflation report was actually quite concerning.

The RBA has said many times that they like to look at housing inflation as one of the early indicators of where the pressures are, and this month we saw that new dwelling cost, a proxy for labor and materials in the construction industry, has surged to .9%, um, month-on-month.

If you annualize that, that's basically 10% year-over-year.

But, um, are you surprised by how resilient some of this spending is?

... yeah.

Yeah.

Yeah, totally.

So obviously, since 1999, when you buy an asset and you sell it, you get taxed on your capital gains, on all your nominal capital gains on it.

But you are taxed at your marginal tax rate, which can go up to 47%, which is very high [laughs] in Australia.

So the idea is that in Australia, you, you shouldn't really be taxed on all your nominal gains because you're basically punished because over time, asset prices always go up with inflation.

Uh, so before 1999, the way you get compensated for it is that you don't get taxed on the inflationary part of your assets.

Any parting thoughts, um, Me, to our audience?

Will this add pressure onto inflation?

We think that this decision would no doubt add further to the inflation pressures that a lot of businesses are already facing, and we do expect the RBA to actually hike twice more this year on the back of this decision.

I think the reason why is because I understand the Fair Work Commission's decision to mesh that four point eight percent peak inflation rate forecast, this is from the RBA, to this, today's decision of increasing w-wages by four point seven five percent.

They probably just want to avoid the headlines of, you know, giving workers negative g-real wages growth.

They don't want that.

But the thing is that inflation would actually tick down on the headline measure after the June quarter to just around four percent by the end of this year.

This is both Treasury and the RBA forecast.This means that most workers are actually getting pretty decent real wages growth at the same time when businesses are actually getting quite a lot of cost pressures in terms of input and material costs.

Mm.

Uh, completely flat liningUm, what, though, are you seeing with growth here? 'Cause we did have that GDP readout for the March quarter, Mee, and, uh, so 0.3% over the quarter, but you take a look at that, uh, GDP read per capita, uh, it tells a different story.

Yeah, I think we're definitely on the verge of a GDP per capita recessions, um, in the upcoming quarters.

Um, of course, throughout the history, there has been a lot of times when GDP per capita goes back, but the actual GDP number is not in a recession.

But I think overall it's still not a great number for Australia because that just means that our living standards is c- is going down.

So over this week we've seen that the pace of growth in the Australian GDP number has pulled back quite a lot from .5 to .6% last quarter to just .3% this quarter.

We've seen that consumers are not really spending a lot more on discretionary purchases.

Instead, we've only seen most growth in essential spending, so those are food, fuel, as well as, um, um, a, a lot of the other essential spendings for the consumers.

Um, that, um, w- it's certainly not doing me any favors, uh, in terms of [laughs] the RBA, but how are they gonna interpret that, do you think, in where wages growth is going?

Is that true?

Well, this definitely not the first time I've heard a call for a crash or for the property bubble in Australia to burst.

I think I've only been in, in Australia for six years, and I think this is, like, the third and fourth time that these headlines made the news.

I don't think that there will be a property bubble burst if...

So that's the short answer.

There's definitely a lot of nuance to it, though.

Yes, over the last month, we've seen national prices kind of down if you look at it on a capital city basis on average.

How much of a real risk is that at the moment for people?

Will this add pressure onto inflation?

We think that this decision would no doubt add further to the inflation pressures that a lot of businesses are already facing, and we do expect the RBA to actually hike twice more this year on the back of this decision.

I think the reason why is because I understand the Fair Work Commission's decision to match that 4.8% peak inflation rate forecast, this is from the RBA, to this, today's decision of increasing award wages by 4.75%.

They probably just want to avoid the headlines of, you know, giving workers negative g- real wages growth.

They don't want that.

But the thing is that inflation would actually tick down on the headline measure after the June quarter to just around 4% by the end of this year.

This is both Treasury and the RBA forecast.

Mm.

... an extra 25 bucks or 50 bucks, uh, levy.

Yep.

So the way the trimmed mean number is constructed is that they take out the top and the bottom items, the top 15% and the bottom 15%.

Why do they do that? Because one, if they don't do that, numbers would just fluctuate up and down, up and down every single month.

It's really hard to get a grasp of where inflation actually is in Australia.

And the second reason, I think this is the core reason why the RBA looks at it, is because over the longer run, the headline inflation numbers tends to converge the trimmed mean number, and not the other way around.

So that's why when you do set policies, you don't want to keep, you know, cut rates then hike rates, or cut rates then hike rates, right? You don't want to keep responding to every single number.

Yeah