What a start the year 2008 has had with the news out of the US economy continuing to worsen being strongly reflected in the global stock markets, not excluding our own with substantial falls reducing the market to mid-late 2006 levels and a return of volatility.

Our major banks and lenders have responded to the tightening of the availability and re-pricing of credit to lend out potential borrowers by raising rates beyond the calls of the RBA which firstly defended by the Treasurer to then later move to attacking the banks.

Along with that and much more, inflation has been the headline story for Australia with P.M Kevin Rudd announcing a ‘war on inflation’ and together with Treasurer Wayne Swan meeting with the reserve bank with the Treasurer returning firmly position blame on previous govt which is not entirely confidence building, perhaps more indicative of expected rising prices and no foreseen easing of interest rates by the reserve. Following the release of the most recent Consumer Price Index figures^? the treasurer was kind enough to fill in the blanks and indicate possible rates pain for two more years.

Perhaps a little more confidence building is the Treasurer asking the Treasury to asses the competitiveness of the banking sector with an eye on reform to make it easier for mortgage holders to switch loans. That’s promising, there is possibly a lot of scope for improvements in comparison rate^? for being a useful measure of comparing loans and a review of exit fees and related procedures. Tied in with some consumer education there could be some great benefit to consumers.

Also promising and mostly well received is the Rudd’s 5 point plan to tackle inflation:
1. A new budget surplus of 1.5 per cent of Australia’s gross domestic product, resulting in a Government a surplus around $18 billion.

2. Examining options to provide incentives to encourage private savings.

3. Developing a plan for tackling the chronic skills shortages in the economy.

4. National leadership to tackle infrastructure bottlenecks.

5. Helping people re-enter the workforce.

Which all sounds a little like Peter Costello left his play book behind when he left office, apart from the razor gang led increase to the budget surplus. So, what’s new? Perhaps Kevin Rudd has a greater chance of getting the states to co-operate. Only time will tell.

Apart from a lot of seemingly bad news there is some good news for the new government in an easing of crude oil costs that at one point hit $100 per barrel and a likely drop in demand with a slowing global economy along with drought easing rain for some farmers of which both may help ease rising costs. While talking about farmers it’s also worth mentioning February 15th at Woolworths which is their drought action day.

As we know the price of oil and coming of rain, along with global economic turmoil, are well beyond the governments control and our own, so, as the treasurer indicates, perhaps this is a good time to be working over the household budget and find some savings…easier said than done I’m sure!

Further Readings:
Glenn Stevens (RBA Governor) on Economic Prospects for 2008
Via RBA
In a speech made in London the Reserve Bank Governor shared his views on the outlook for 2008 with views on global growth, the US economy and global inflation risks. Some interesting points made were reiterating the expected slowdown in global growth, the importance of China and that it is still to soon to see the full effects of the turmoil in financial markets on Australia. He also enters into some detail on inflation pressures pointing out the high costs of foodstuffs, energy and raw materials along with the importance of containing wage growth. Visit the Full Article »

World’s least affordable homes
Demographia
Australian and New Zealand homes are now the least affordable in the world, according to a survey of 227 cities published in the 2008 Demographia study of international housing affordability. View the report at Demographia [PDF]

Blowing out inflation candles
Terry McCrann - Herald Sun
Reserve Bank governor Glenn Stevens got two unexpected birthday presents yesterday writes McCrann continuing with some insight into the coming potential rate hike/s. Visit the Full Article »

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