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Inflation, Impacts and Ideas

Written by Michal Lancemore

Inflation was the catchword of 2022 + 2023 and will continue into 2024 but for good reason – there’s a downward trend!

As a refresher, according to the RBA, inflation is an increase in the level of prices of the goods and services that households typically buy.  The goods and services with the biggest impacts to inflation for Australia have been housing, transport and food.

A powerful lesson from history is that low and stable inflation is a prerequisite for a strong economy and sustained full employment and growth in real wages.

Important inflation numbers recently have been:

7.8% – this is the annual Consumer Price Inflation peaking in the December 2022 quarter

6.0% – this is the annual inflation figure for the June 2023 quarter

5.4% – this is the latest annual figure from September 2023 quarter

The Mid Year Economic and Fiscal Outlook Report expects inflation to drop to 2.75% in the latter half of this year and into 2025, before reaching the RBA target of 2.5% in the following two years.

This more positive CPI data has led to speculation that the RBA is done with rate rises for now. Indeed, that seems to be the view of the OECD, which has issued an update to its forecast for the Australian economy this year:

“The projections assume that the cash rate will be held at this restrictive level until inflation is clearly declining to the target band, with 75 basis points of interest rate cuts assumed between the third quarter of 2024 and end-2025,” the report said.

I’ve been reflecting a lot during the month of January about what I wish to achieve in 2024.  The cost-of-living crisis has played a bit part in terms of what I can realistically achieve with my limited surplus cashflow.  Therefore, it’s time to think more critically about how I can structure my investments to work for me whilst I can’t actively contribute at present (thanks interest rate rises!).

Some ideas for you to consider if you are in the same boat:

  • If you have low superannuation balances, at least 10 years until retirement age and are not in a position to contribute to superannuation, consider introducing gearing within your funds. Gearing is a way to leverage your super balance without the need to contribute to build capital.
  • To go one step further, if you have no capacity to borrow in your personal name but wish to build leverage even more, explore whether a Self Managed Superannuation Fund is a good fit for you and what you wish to achieve.
  • Ad hoc contributions to managed funds – this is a flexible strategy that depends upon your means. If you can contribute one month, but not the next, do so!
  • Alternatively, use offset accounts for your cash to achieve a guaranteed tax free investment return equal to your interest rate.

In an effort to combat higher costs, I have decided to embrace JOMO this year (the Joy Of Missing Out).  In addition:

  • I have enrolled in a grooming workshop so I can groom my two labradoodles myself rather than outsource their beauty treatments
  • I am aiming to walk said dogs most days so I can meet my goal of 7,000 steps per day. This will not only exercise my dogs and improve my physical health, but it will also do wonders for my mental health.
  • I will meal plan and grocery shop only once weekly – this actually solves my strong dislike of shopping
  • I will change family dentists and use a NO GAP option
  • I will avoid buying new. In addition, if I need/want to purchase something, it will be secondhand and I will aim to sell something of my own to justify the purchase.

It’s important to keep in mind that sometimes in our investment journey, things can appear to stagnate as external forces impact our ability to actively build our asset base (think having a baby, marriage, divorce, cost of living etc).  Our existing assets are still organically growing over time despite this.

‘This too shall pass’ ~ Persian adage

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