Inflation is tipped to peak at 7.5% on Wednesday when the Australian Bureau of Statistics releases the consumer price index figures for the December 2022 quarter.
Although this figure is below the Reserve Bank’s forecast of 8%, a smaller increase might hint that the relentless interest rate hiking cycle might soon draw to a close, the Australian Financial Review has reported.
If the market consensus comes to pass, the final inflation result for 2022 will indicate whether 2023 might be as bad as first predicted. The figures will be released on January 25, a fortnight ahead of the RBA’s first board meeting for 2023 on February 7. Economists are forecasting a ninth straight official cash rate rise to 3.25%, an increase of 15 basis points.
On Sunday, Federal Treasurer Jim Chalmers (pictured above left) said the outlook for the global economy was increasingly about downturn not disaster, however he warned while the expectation was that inflation had peaked last month, that might not be the case.
“We hope inflation has now peaked and we see the peak in the December numbers that we get this week, but that remains to be seen,” Chalmers told AFR.
A large part of this newfound economic optimism about 2023 was China’s decision to remove its COVID-zero policy and the speed it was returning to normal after nearly three years of strict conditions.
Chalmers said he was cautiously optimistic on China as the country was still working through a huge wave of COVID-19 infections and he reiterated trade restrictions imposed on billions of dollars in Australian exports needed to end, AFR reported.
“The Chinese economy will obviously have a big impact on the performance of our own economy,” he said. “We do expect it to rebound relatively strongly and relatively quickly. I’m optimistic about the prospects for our economy, the prospects for our country, but we’ve got to be realistic about the implications of what’s happening around the world as well.”
How to navigate uncharted inflation waters
According to a recent ANZ report, remaining nimble is the key to navigating global markets in 2023. Last Thursday, ANZ released its 2023 Global Market Outlook, with experts predicting the year ahead to be challenging for investors but that being nimble would help to take advantage of opportunities.
“2023 will be hard-pressed to outdo the challenges that financial markets faced in 2022, however, this year is unlikely to be a smooth ride for investors,” said Lakshman Anantakrishnan (pictured above centre), ANZ private banking head of investment strategy.
“While the macro-outlook will remain challenging, unlike 2022 there should be ample opportunity for investors this year — where and when remains the question.”
Anantakrishnan said ANZ also forecasted equities to test a new bottom before any sustained rally as the market started to shift its focus from inflation towards the outlook for global growth, due to a likely peak in inflation.
“There has been a lot of speculation that the recent stepdown in the level of interest rate rises by the US Federal Reserve is a pivot, with the market pricing in cuts this year,” he said.
“In our view, we believe this is unlikely to occur without material weakness in the labour market. At best it’s a stepdown in hawkish narrative, at worst it’s only served to extend the tightening cycle. We see any rate cuts this year as unlikely unless growth deteriorates to such an extent that the Federal Reserve is forced to blink and even then, questions remain as to whether it will.”
Property in 2023
Looking ahead to what is in store for the property market in 2023, the Bricks and Mortar Media Property Forecast Report for 2023 described last year’s housing market as “surprising” with homeowners welcoming extraordinary capital gains across just about every location.
Property Investors Council of Australia (PICA) chair Ben Kingsley (pictured above right) said there were two scenarios’ people should consider and they both had to do with market interventions in 2023.
“Firstly RBA and interest rates – if the cash rate stabilises at just above 3% and we don’t see rate rises from this point forward as inflation begins to ease, plus we see APRA reduce their servicing buffers back down to 2% or 2.5% allowing borrowers back into the market – then we’ll most likely see a stabilising of prices in more states than less from the current declining markets we have now,” Kingsley said.
“Secondly, if the cash rate pushes to mid-3% and even beyond, we will continue to see a very sluggish market, with further price corrections, even if APRA do adjust their buffer rate down. If they don’t move the buffer rate at all in 2023, we are in for a tougher landing in the property sector than was really needed and this will cause unnecessary pain on more households than needed.”
