Repeat buyers are one of the strongest measures of confidence in any apartment development.

At <a href="https://www.apartments.com.au/new-apartments/era-newcastle-west-124-126-bull-street-newcastle-west-nsw-2302">ERA</a> in Newcastle West, some purchasers are returning to <a href="https://www.apartments.com.au/developers/gwh">GWH</a> after living at the developer's One Apartments. Their decision to purchase again was driven by the quality of life they found after moving into their first GWH home.

Keith Wilton had spent years living in a house in East Maitland before deciding it was time for a change. Apartment living had always been on his radar, but he was selective about what he wanted.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/FH_1EzB-1vs?si=XScVlP1ERsTDJoME" title="YouTube video player" width="560"></iframe>

"I had some boxes I wanted to tick," he says.

Keith points to the open-plan design, generous outdoor areas and considered inclusions as key reasons One Apartments worked for him.

“One of those things was a nice indoor open plan area, but also I wanted a nice outdoor open area that I could entertain on in summer or Christmases or birthdays,” he says.

He also found value in the smaller details, from integrated appliances to shared resident spaces including the pool, cinema and rooftop areas.

[smartcode_project:default project_id=135096 project_image_fid=356818]

After comparing several developments, he chose One Apartments because of GWH's longstanding local reputation and his own experience working with the developer on a commercial project more than a decade earlier.

"I knew that they were local, that the quality of the build was going to be up there. I'd looked at other apartment complexes around and close by, and I just knew that here was a better decision location wise."

Today, Keith says the move has completely changed how he experiences Newcastle.

"I enjoy living in this location because it's more of a lifestyle change. That Newcastle city living where you can walk to restaurants and bars and even beaches and parks and even shopping across the road."

[smartcode_project:default project_id=135096 project_image_fid=356828]

Beyond the location, he says it's the sense of community that has surprised him most.

"Everyone loves living here because they chose to live here, but everyone looks out for each other. It's a real great community feel here."

For Aimee and Lyle Goodman, the journey started almost by chance.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/tsioMLcnjas?si=zq-ys3JuWpfa5hFv" title="YouTube video player" width="560"></iframe>

The couple happened to be having coffee in Newcastle when they noticed the site where One Apartments was about to begin construction.

"We were aware GWH was planning a development," Aimee says. "We made one phone call and things moved pretty quickly after that."

As busy business owners, they initially thought apartment living would simply reduce the maintenance that came with larger homes. Instead, it fundamentally changed how they spent time together.

"We actually catch up more as a family now," Aimee says.

"We've had homes with big yards and lots of space, but everyone ended up in different rooms. Here we'll have dinner together, the kids can play, and we spend far more quality time together."

[smartcode_project:default project_id=135096 project_image_fid=356829]

Lyle says their confidence came from GWH's reputation within Newcastle's building industry.

"I know people who've worked across different apartment projects, and whenever GWH came up the feedback was always the same. They're rock solid. They're quality."

That confidence only grew throughout the buying process.

"One of the things that really impressed us with GWH was the whole process, was the communication," Lyle says. "It was consistent, it was regular, there was no problem if we had some weird questions, there was no problems in getting answers."

[smartcode_project:default project_id=135096 project_image_fid=351104]

Aimee says one moment stood out.

"The project actually finished on time. We realised we needed to hurry up and sell our house because everything was happening exactly when they said it would."

The positive experience at One Apartments ultimately gave all three buyers the confidence to purchase again with GWH, this time at ERA.

Their confidence reflects what many buyers are seeking in today's apartment market. Location remains important, but so too does certainty around delivery, quality and long-term liveability.

[smartcode_project:default project_id=135096 project_image_fid=356822]

ERA builds on those foundations with 280 one, two and three-bedroom apartments across two landmark towers in <a href="https://www.apartments.com.au/developments/newcastle-west-nsw-2302">Newcastle West</a>.&nbsp;

Designed by <a href="https://www.apartments.com.au/architects/fk-australia">Fender Katsalidis</a>, the project will include more than 2,000 square metres of resident amenities, including a resort-style pool, gym, sauna, private cinema and rooftop entertaining spaces overlooking the harbour and coastline.&nbsp;

The development is also within walking distance of the Newcastle Interchange, Honeysuckle, Darby Street, the harbour foreshore, restaurants, retail and the city’s beaches, continuing the walkable lifestyle that existing GWH buyers say has transformed how they live.

[smartcode_project:default project_id=135096 project_image_fid=356826]

For Keith, the appeal remains straightforward.

"You feel at home even before you've moved into your home."

For Aimee, the change is measured in time.

“I just felt like I had more time,” she says.

[smartcode_project:default project_id=135096 project_image_fid=351102]

Construction at ERA is now underway, with more than half of the residences already sold and limited two and three-bedroom apartments remaining in the East Tower release. Priced from $980,000 for two-bedroom residences and $1.46 million for three-bedroom residences, buyers can secure an apartment with a 10 per cent deposit, with premium homes offering ocean views from Level 8 and harbour views from Level 10.

ERA is also backed by Resilience Insurance's 10-year Latent Defects Insurance policy, providing protection against structural or waterproofing defects for 10 years after completion. The project is anticipated to be completed in early 2028.

[smartcode_project_cta:default project_id=135096]

Joel Robinson

From ONE to ERA: Why buyers are choosing GWH again in Newcastle West

Virgate Property Group is preparing to commence construction of Verdé, its new apartment development in Melbourne's Arts Precinct at Southbank, following a strong run of sales that has seen more than half of the project's 173 apartments secured.

Verdé has attracted a broad mix of first home buyers, owner-occupiers upgrading from nearby inner-city suburbs and investors, with younger owner-occupier couples aged between 28 and 45 accounting for the strongest enquiry. Many are already living in Southbank, South Melbourne, Albert Park, Port Melbourne, South Yarra and the CBD.

"Verdé is located in one of the most desirable pockets of southern Melbourne," Blair Property Group Director Darren Blair, who is managing sales at Verdé, said.

"It's within walking distance of the Arts Centre, Royal Botanic Gardens, Albert Park Lake, and Southbank's restaurants and retail. It's a great lifestyle location with strong amenity and liveability, which made it a very attractive choice for the project."

[smartcode_project:default project_id=4661 project_image_fid=372549]

Virgate was already familiar with the precinct, having previously delivered the successful Domain House development in neighbouring South Melbourne. That experience gave the developer confidence to acquire the Coventry Street site and continue expanding its presence in Melbourne's inner south.

"We had been keeping an eye on the site and the broader precinct for a few months before deciding to move forward with the acquisition," Virgate said.

The project was ultimately secured in 2020 following feasibility studies, planning assessments and due diligence, with the brief centred on delivering "a high-quality, considered design that feels both refined and fit for purpose."

[smartcode_project:default project_id=4661 project_image_fid=314259]

Designed by <a href="https://www.apartments.com.au/architects/bruce-henderson-architects">Bruce Henderson Architects</a>, Verdé comprises 173 one, two and three-bedroom apartments priced from $599,000. The architecture is distinguished by a faceted glass façade that responds to both the site's outlook and Melbourne's changing light conditions.

According to Bruce Henderson Architects, the coloured glazing gives the building a distinctive identity while also providing privacy and solar shading, with residences oriented to capture views across the bay, city skyline and surrounding parklands.

Inside, <a href="https://www.apartments.com.au/interior-designers/designoffice">DesignOffice</a> has created interiors focused on natural light, efficient planning and enduring materials. Apartments feature engineered oak flooring, natural stone benchtops, floor-to-ceiling glazing and SMEG appliances, while a restrained material palette aims to complement the expansive outlooks rather than compete with them.

[smartcode_project:default project_id=4661 project_image_fid=372550]

Resident amenity has also been designed around everyday functionality rather than occasional use. Facilities include a concierge-serviced lobby, residents' lounge with fireplace, library and co-working space, gym, terrace garden with barbecue facilities, ground-floor café, and package delivery management.

The project's location continues to be one of its strongest drawcards. Positioned on Coventry Street, Verdé sits within walking distance of the National Gallery of Victoria, Arts Centre Melbourne, Royal Botanic Gardens and Albert Park Lake, while Southbank's dining precinct, Sturt Street trams and the new ANZAC Station are all nearby. The surrounding education catchment also includes Melbourne Grammar, Melbourne Girls Grammar, Mac.Robertson Girls' High School and several major university campuses.

The sales team says buyers have responded particularly well to the combination of location, design quality and long-term liveability.

"They're responding really positively to the quality of the design, premium resident amenities and the uninterrupted views. Many also appreciate the location and how connected it is to everything they need."

The ability to secure stamp duty savings before completion has also been a key factor for purchasers, alongside the opportunity to personalise finishes ahead of settlement.

With construction set to commence soon and more than half the apartments already sold, Verdé enters its next phase as one of the Arts Precinct's more established apartment developments, offering remaining buyers an opportunity to secure a residence before construction advances further. Expected completion is scheduled for late 2027.

[smartcode_project_cta:default project_id=4661]

Virgate's Verdé Southbank moves toward construction as sales fly past halfway stage

Downsizer-focused apartment development Kooyongkoot in Hawthorn has been recognised at the 2026 Better Future Melbourne Design Awards, taking home Gold and Silver awards in two categories.

<a href="https://www.apartments.com.au/new-apartments/kooyongkoot-hawthorn-1-kooyongkoot-road-hawthorn-vic-3122">Kooyongkoot</a>, currently being delivered by developer PQD and designed by Cera Stribley, received Gold in the Interior Design – Proposed category and Silver in the Architecture – Proposed category.

The dual recognition reflects the design approach behind the boutique development on prestigious Kooyongkoot Road, where the focus has been on creating homes for downsizers seeking the space, quality and functionality of a detached house within a low-rise apartment building.

Rather than maximising apartment numbers, <a href="https://www.apartments.com.au/developers/pqd">PQD</a> and <a href="https://www.apartments.com.au/architects/cera-stribley-architects">Cera Stribley</a> limited the development to just 18 residences, allowing for larger floorplans, greater privacy, generous landscaping and expansive communal spaces.&nbsp;The majority of the apartments also benefit from corner aspects, allowing for dual sources of natural light.

Now around 70 per cent complete and on track for completion in November 2026, Kooyongkoot will comprise a mix of garden residences, ter​race apartments, sub-penthouses, and is crowned by two half-floor penthouses with direct lift access and private rooftop terraces.

[smartcode_project:default project_id=102717 project_image_fid=355297]

The Silver Award for Architecture recognised the way the building responds to its prominent corner position at the ent​rance to Hawthorn's Scotch Hill precinct, one of Melbourne's most established residential neighbourhoods.

Rather than competing with the grand homes that line Kooyongkoot Road, the architectural approach focused on restraint and longevity, using curved brickwork, generous landscaping and carefully considered proportions to integrate with the existing streetscape.

"The form feels fluid and timeless, as though shaped by the landscape itself – architecture that belongs, rather than competes," said Chris Stribley, Co-Founder and Managing Principal of Cera Stribley.

The judging submission also highlighted practical innovations throughout the building, including lift cores servicing only nine homes each, a central landscaped lightcourt designed to bring daylight and ventilation into the building, and fully enclosed private storage rooms with lighting, power and shelving to better accommodate residents transitioning from larger family homes.

[smartcode_project:default project_id=102717 project_image_fid=355293]

The Gold Award for Interior Design recognised the project's focus on long-term liveability rather than display-home aesthetics.

According to the awards submission, the interiors were designed from the inside out, prioritising how homes would function over decades of daily use through generous proportions, practical storage, durable natural materials and flexible layouts.

The specification includes natural stone throughout, upgraded acoustic glazing, V-ZUG appliances and fully enclosed storage rooms, alongside an amenity offering focused on wellness, entertainment and everyday convenience.&nbsp;

Residents will have access to a gym and yoga studio, a wellness centre featuring traditional and infrared saunas, a cold therapy shower and treatment room, as well as a residents' lounge and golf simulator/cinema room for entertainment.&nbsp;Kooyongkoot has also considered the everyday convenience of its residents by offering a private carwash and pet wash facilities on site as well as dedicated parcel lockers and oversized fully enclosed storage rooms.&nbsp;

[smartcode_project:default project_id=102717 project_image_fid=355303]

The project's attention to detail has already resonated with buyers. Earlier this year, Kooyongkoot recorded one of Boroondara's highest apartment sales when an $8 million penthouse was purchased by a Melbourne CEO downsizing from a nearby family home.

"Every detail feels deliberate, from the overall design down to the smallest touches," the purchaser said.

"The level of quality and refinement is exceptional, but what really sold it was how liveable it felt... It felt like a place where everything had been considered, not just a luxury building."

[smartcode_project:default project_id=102717 project_image_fid=355304]

Sustainability also formed a key part of both award submissions. Kooyongkoot is targeting a minimum 7.5-star NatHERS rating across all residences, supported by passive design principles, high-performance glazing, EV charging infrastructure, water reuse systems and a wellness model focused on lower-energy dry facilities rather than pools and large wet areas.

Located within walking distance of Scotch College, Methodist Ladies' College, Koo​yong Lawn Tennis Club, Aubur​n Village and Camberwell Junction, Kooyongkoot continues to target owner-occupiers looking to remain in Melbourne's inner east without compromising on space or quality. A limited selection of two, three and four-bedroom residences remains available, with prices starting from $1.9 million.

[smartcode_project_cta:default project_id=102717]

Kooyongkoot wins Gold and Silver at Better Future Melbourne Design Awards

New apartment supply has become increasingly constrained across <a href="https://www.apartments.com.au/developments/parramatta-nsw-2150">Parramatta</a> in recent years, with fewer projects progressing through to completion as development conditions have become more challenging.

It makes <a href="https://www.apartments.com.au/developers/novm">NOVM</a>'s 2021-completed <a href="https://www.apartments.com.au/buildings/the-lennox-parramatta-12-phillip-street-parramatta-nsw-2150">The Lennox</a> one of the most recently completed residential towers on the Parramatta River, and among the newest apartment developments in Sydney's second CBD.

With the project largely completed before the sharp escalation in construction costs and inflation following the pandemic, The Lennox is now offering pricing that would be difficult to replicate in a comparable new development in Parramatta today, or across much of Western Sydney.

The majority of the 413 apartments at The Lennox sold before and shortly after completion. A limited release of the remaining apartments has recently been brought to market by capital partner <a href="https://www.apartments.com.au/project-marketer/equitifund-group">Equitifund</a>, with entry-level pricing from $700,000 and two-bedroom apartments available from under $1 million.

Rising above the Parramatta River at 12 Phillip Street, The Lennox comprises one, two, three and four-bedroom apartments, appealing to first home buyers, young professionals, families, downsizers and interstate investors seeking a completed apartment in one of Australia's fastest-growing economic centres.

[smartcode_project:default project_id=5743 project_image_fid=372394]

Rather than positioning Parramatta as an alternative to Sydney's CBD, Equitifund believes the city has reached a point where it stands on its own merits.

"Parramatta is no longer simply an alternative to Sydney CBD, it's becoming a destination in its own right," Equitifund Executive Chairman Greg Huxley said.

"The Lennox captures that evolution with a level of quality and amenity that's difficult to match at its price point."

[smartcode_project:default project_id=5743 project_image_fid=953]

Designed by <a href="https://www.apartments.com.au/architects/marchese-partners">Marchese Partners</a>, the tower responds directly to its riverfront setting through expansive glazing and open-plan layouts that maximise views across the Parramatta River and city skyline. Interiors feature engineered timber flooring, stone benchtops, stainless steel appliances and floor-to-ceiling glazing, while generous balconies extend the living spaces outdoors.

Marchese Partners says the project was conceived to balance high-quality apartment living with practical, long-term functionality, pairing larger, efficient floorplans with amenities more commonly associated with five-star hotels.

That emphasis continues through the resident facilities, which include a 20-metre rooftop swimming pool, fully equipped gym and wellness spaces, full-time concierge, a residents' lounge, function room, private lifts, secure basement parking and rooftop communal areas overlooking the Parramatta River. Ground-floor boardwalk retail and dining further activate the riverfront and integrate the building into the surrounding public realm.

[smartcode_project:default project_id=5743 project_image_fid=925]

Australian housing and finance group Equitifund has secured the remaining apartments, believing there are few completed apartment opportunities in Parramatta that offer the same combination of location, amenity and pricing.

Equitifund National Sales Director Ben Hamblett says buyers are increasingly recognising that premium apartment living no longer needs to come with Sydney CBD pricing.

"The Lennox is where aspirational living becomes attainable," Hamblett said.

"Wake to river and mountain views, step into Sydney's Second CBD, and arrive home to resort-calibre amenities, all without the harbour price tag."

Hamblett says owner-occupiers are also attracted by the convenience of having Westfield Parramatta, Church Street's dining precinct, Parramatta Park, Riverside Theatres, Western Sydney University and major transport connections all within walking distance.

"At The Lennox, lifestyle is not an afterthought, it is the foundation."

[smartcode_project:default project_id=5743 project_image_fid=5374]

The Lennox places residents within walking distance of Parramatta Square, Westfield Parramatta, Church Street Eat Street, Parramatta Station, the ferry wharf, Light Rail, the future Sydney Metro West, Parramatta Park and CommBank Stadium, reinforcing Parramatta's position as one of Australia's most connected metropolitan centres outside Sydney's CBD.

Equitifund says buyers visiting the display suite consistently comment on the quality of the finishes, generous floorplans, river and skyline views, and the walkability of the location. The project has attracted a broad mix of local professionals, upsizers, downsizers, buyers relocating from Sydney's inner suburbs and interstate investors seeking long-term growth opportunities.

That demand aligns with Parramatta's continued evolution as an economic powerhouse. Equitifund Research and Market Insights specialist John Bekiaris says sustained population growth, infrastructure investment and expanding employment opportunities continue to support long-term housing demand across the city.

"Parramatta has evolved from a satellite city into one of Australia's most important economic centres. Population growth, infrastructure investment and employment are all supporting sustained long-term housing demand."

[smartcode_project_cta:default project_id=5743]

The apartment price gap drawing Sydney buyers west

A luxury beachfront apartment at Rainbow Bay has more than doubled in value since it sold off the plan six years ago, setting a new local apartment record in the process.

The three-bedroom apartment in the Flow development on Petrie Street, the first of four new projects locally by Paul Gedoun's S&amp;S Projects, has sold for $7.4 million, after originally selling for $3.27 million when the project launched in 2020.

The seventh-floor apartment, comprising 187 sqm of internal living space and a 54 sqm balcony overlooking Froggies Beach and Snapper Rocks, was purchased by a local family.

The transaction was negotiated by Pezet Matheson director Kerry Pezet and equates to more than $30,000 per sqm.

Pezet said the sale reflected the limited opportunities to buy into the boutique beachfront development.

"The sale highlights the rarity of opportunities within the boutique beachfront development, where residences seldom become available," Pezet said.

"Flow is one of the Gold Coast's most tightly held buildings. Buyers from our database move quickly when residences become available, and achieving an off-market sale at $7.4 million demonstrates the depth of demand for property of this calibre."

<img alt="Flow" data-entity-type="file" data-entity-uuid="c585b206-2130-4eee-a50c-3f27c51a7c70" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-06%20at%208.33.25%E2%80%AFPM.png?VersionId=m3pHRDV62Y3fvN.XQuQHq.52ilTWpRLf" />

Flow was the first of four luxury apartment developments delivered by Paul Gedoun's S&amp;S Projects at Rainbow Bay and was completed in 2023.

Positioned on the beachfront overlooking Snapper Rocks, the residence includes three bedrooms, three bathrooms, a powder room and views stretching north along the coastline towards Surfers Paradise.

Pezet Matheson Residential principal Mitchell Lambert said buyers continued to prioritise quality beachfront apartments in tightly held locations.

"Flow Residences offers a rare combination of elevated beachfront positioning, architectural excellence, comprehensive resident amenity and premium finishes, which is exactly what discerning purchasers are seeking," Lambert said.

"The transaction further reinforces Rainbow Bay's reputation as one of Australia's premier coastal lifestyle destinations, where limited supply and growing demand continue to support strong market performance."

Pezet Matheson originally marketed and sold out Flow off the plan, making the latest transaction a return to one of the project's original buyers.

Paul Gedoun is selling his third project, <a href="https://www.apartments.com.au/new-apartments/radia-rainbow-bay-271-boundary-street-coolangatta-qld-4225">Radia Rainbow Bay</a>, after recently completing, and selling out, <a href="https://www.apartments.com.au/buildings/esprit-217-227-boundary-street-coolangatta-qld-4225">Esprit</a>. He has plans for a <a href="https://www.apartments.com.au/news/qld/first-look-s-s-projects-proposes-88-apartment-wellness-tower-at-coolangattas-boundary-street">fourth building</a>, 88 apartments on <a href="https://www.apartments.com.au/new-apartments/209-213-boundary-street-coolangatta-qld-4225">Boundary Street</a>.

Rainbow Bay apartment doubles in price since off the plan sale during pandemic

Economics

<html><body>
EXPERT OBSERVER
What has changed since the last meeting?
The CoreLogic national home price index rose by 1.7% in November – the biggest rise in 16 years.
Wages rose 0.5% in the September quarter to be up 2.2% on the year.
Building approvals fell by 8.1% in October.
Business confidence and conditions rose in October.
Job ads fell by 1.7% in November. 
Private sector credit annual growth fell from 2.7% to a 9½-year low of 2.5% in October.
Employment fell by 19,000 in October – the first fall in 17 months.
The jobless rate rose from 5.2% to 5.3%.
In the twelve months to October 2019, the Budget deficit stood at just $78 million.
New business investment (spending on buildings and equipment) fell by 0.2% in the September quarter to be down by 1.3% over the year.
The rolling annual trade surplus was a record $63.35 billion in the year to September.
The Australian dollar has generally held around US66-69 cents.
The US and China are still reportedly progressing on a ‘Phase 1’ trade deal.
US and Australian share markets hit record highs in November.
The Reserve Bank Governor spoke on ‘unconventional monetary policies’.
The assessment
The Reserve Bank emphasises that rate cuts are indeed working. “The lower cash rate has put downward pressure on the exchange rate, which is supporting activity across a range of industries. It has also boosted asset prices, which in time should lead to increased spending, including on residential construction. Lower mortgage rates are also boosting aggregate household disposable income, which, in time, will boost household spending.”
The Reserve Bank has left the cash rate at 0.75% after cutting rates in June, July and October, each by 25 basis points. There have now been 15 rate cuts since November 2011 with the cash rate cut from 4.75%.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/12/3/Rate%20Cuts%20Lower%20AUD%20CommSec.jpg" alt="">
Previously rates rose seven times from October 2009 to November 2010 from 3.00% to 4.75%.
Interest rates are set to stay low for an extended period. The latest monthly reading suggests that inflation remains stuck near 1.5% – well below the Reserve Bank’s 2-3% target zone.
Rates could still go lower but the Reserve Bank seems prepared to play the waiting game. The Reserve Bank has emphasised that the rate cuts are indeed working, suggesting it may allow more time before deciding the next rate move. While rate cuts have caused confidence to weaken, the RBA is asking people to focus on the positives of lower rates like higher home prices and a lower Aussie dollar.
The Commonwealth Bank Group has pencilled in another rate cut in February. But fiscal policy stimulus is preferred. The mid-year budget review is handed down later in December.
The statement from the previous November 2019 meeting is on the left; the statement from today’s December 2019 meeting is on the right. Emphasis has been added to highlight key points in the wording in the statements.
The Reserve Bank emphasises that rate cuts are indeed working. “The lower cash rate has put downward pressure on the exchange rate, which is supporting activity across a range of industries. It has also boosted asset prices, which in time should lead to increased spending, including on residential construction. Lower mortgage rates are also boosting aggregate household disposable income, which, in time, will boost household spending.”
Perspectives on interest rates
The Reserve Bank has left the cash rate at 0.75% after cutting rates in June, July and October, each by 25 basis points. There have now been 15 rate cuts since November 2011 with the cash rate cut from 4.75%.
Previously rates rose seven times from October 2009 to November 2010 from 3.00% to 4.75%.
What are the implications of today’s decision?
Interest rates are set to stay low for an extended period. The latest monthly reading suggests that inflation remains stuck near 1.5% – well below the Reserve Bank’s 2-3% target zone. 
Rates could still go lower but the Reserve Bank seems prepared to play the waiting game. The Reserve Bank has emphasised that the rate cuts are indeed working, suggesting it may allow more time before deciding the next rate move. While rate cuts have caused confidence to weaken, the RBA is asking people to focus on the positives of lower rates like higher home prices and a lower Aussie dollar.
The Commonwealth Bank Group has pencilled in another rate cut in February. But fiscal policy stimulus is preferred. The mid-year budget review is handed down later in December.
Craig James is the chief economist at CommSec.
</body></html>

cjames-5S2v74qSNK

Reserve Bank believes its rate cuts are working: CommSec's Craig James

<html><body>
GUEST OBSERVATION
The Australian Labor Party’s 2019 election campaign showed a depth and breadth of economic policies rare for an opposition party to present. Its policy agenda was boldly extensive. But in developing these policies over the past five years, it seems Labor’s economic minds overlooked some fundamental principles of behavioural economics.
Had greater focus been put on these principles, it is possible Labor would have taken a different approach to selling its credentials, and succeeded in moving more voters its way.
1. People are loss averse
Distinguished psychologists Amos Tversky and Daniel Kahneman demonstrated in the 1970s that losses have a profound psychological impact and people prefer to avoid them. In 1979 they <a href="https://www.uzh.ch/cmsssl/suz/dam/jcr:00000000-64a0-5b1c-0000-00003b7ec704/10.05-kahneman-tversky-79.pdf">published a paper</a> proposing what they called “prospect theory” – that the pain a person feels from a monetary loss is greater than the pleasure felt from a monetary gain of the same value.
<hr>
<a href="https://images.theconversation.com/files/275783/original/file-20190521-23838-r9kptt.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/275783/original/file-20190521-23838-r9kptt.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
<a class="source" href="https://www.economicshelp.org/blog/glossary/prospect-theory/" target="_blank">economicshelp.org</a>
<hr>
As Tversky and Daniel Kahneman put it succinctly: “Losses loom larger than gains.” This means, when faced with uncertain outcomes, most people prefer keeping the status quo to the risk of change.
Labor’s failure to persuade more voters they would gain more than they might lose under its reforms played to the Coalition’s advantage.
The government was able, for example, to make the most of Labor’s policy on negative gearing by playing on the chance all home values would fall, even though modelling suggested any fall would be minor.
It did something similar with Labor’s franking credit, casting it as a “retiree tax”, and playing on fears that big promises to increase spending on welfare, health, education and wages might mean them losing money from other tax changes.
2. Limited decision-making
People’s decisions are limited by the amount of information they have – a concept known as bounded rationality – and giving them more information doesn’t necessarily help.
Our ability to pay attention to two or three things at the same time is much more limited than we think. We tend to be selectively inattentive, screening out information we perceive as unimportant, and preferencing information that confirms existing views.
Economists Richard Thaler and Cass Sunstein argued in a 2002 article that bounded rationality demanded “<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=405940" target="_blank">libertarian paternalism</a>” – limiting the choices offered to voters without eliminating freedom of choice.
Labor went another way – burying voters in an avalanche of policy prescriptions. Arguably it overestimated how much people would absorb, and diluted focus on a few key ideas.
<a href="https://images.theconversation.com/files/275608/original/file-20190521-23829-14y6hdh.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/275608/original/file-20190521-23829-14y6hdh.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=237&amp;fit=clip" alt=""></a>
System 1 and 2 thinking. <a class="source" href="http://upfrontanalytics.com/market-research-system-1-vs-system-2-decision-making/" target="_blank">www.upfrontanalytics.com</a>
To understand and compare policy detail, according to <a href="https://books.google.com.au/books/about/Thinking_Fast_and_Slow?id=ZuKTvERuPG8C" target="_blank">economist and psychologist Daniel Kahneman</a>, requires a deliberate and methodical approach – what he calls “System 2 thinking”.
But most media and social media deals in “System 1 thinking”, which responds instinctively to short slogans and repeated messaging.
What Labor failed to do was reconcile System 2 idealism with System 1 necessities.
3. Now is worth more than later
People place a higher value on the short-term over the long-term. From an evolutionary perspective, this bias has no doubt served us well, particularly in times past when the future was much more uncertain.
This disposition informs an important economic concept known as hyperbolic discounting – the tendency for people to increasingly choose a smaller reward sooner over a larger reward later.
Say, for example, you were offered a choice between taking $150 now or $160 in four weeks. Most people would take the $150.
But what if you were asked to choose between $150 in 48 weeks or $160 in 52 weeks? Research shows most people would then elect to wait the extra four weeks to receive the higher amount of money.
So Labor faced the problem of it promising to deliver benefits that might take decades to pan out, such as transitioning from fossil fuels to renewable energy, while the Coalition was offering immediate tax cuts and cheaper energy prices. Many Australians, we can imagine, preferred the more immediate benefits to the longer-term ones.
Whatever criticisms might be made about other aspects of the campaign, the Coalition’s messaging demonstrated an intuitive understanding of the behavioural biases of individuals.
From its strategy Labor could learn a lot.
Tracey West, Lecturer in Behavioural Finance, Griffith University
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/3-lessons-from-behavioural-economics-bill-shortens-labor-party-forgot-about-117404" target="_blank">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Three lessons from behavioural economics Bill Shorten’s Labor Party forgot about: Tracey West

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GUEST OBSERVATION
There are some anecdotes just so good that almost every story about a particular economic principle begins the same. So too this article begins with cake mix.
In the 1950, the story goes, US food company General Mills wanted ideas on how to sell more of its Betty Crocker brand of instant cake mixes. It put psychologist Ernest Dichter – the “father of motivational research” – on the case.
Dichter ran focus groups. Change the recipe, he then advised the company. Replace powdered eggs in the cake mix with the requirement to add fresh eggs. All-instant cake mix makes baking too easy. It undervalues the labour and skill of the cake maker. Give the baker more ownership in the final result.
And the rest is history.
<iframe src="https://www.youtube.com/embed/_ts9HLWh2qI?wmode=transparent&amp;start=0" frameborder="0" width="440" height="260"></iframe>
Add eggs! Betty Crocker cake mix advertisement.
It’s likely this story is <a href="https://www.snopes.com/fact-check/something-eggstra/" target="_blank">extremely overegged</a>. Inconvenient facts include another company, <a href="https://www.mashed.com/66243/untold-truth-duncan-hines/?utm_campaign=clip" target="_blank">Duncan Hines</a> having a cake mix recipe using fresh eggs (developed by food chemist <a href="https://daily.jstor.org/duncan-hines-cake-mix-maker-extraordinaire/" target="_blank">Arlee Andre</a>) as early as 1951. And in 1935, the company P. Duff and Sons <a href="https://www.bonappetit.com/entertaining-style/pop-culture/article/cake-mix-history" target="_blank">was granted a patent</a> for a cake mix using fresh eggs.
<a href="https://images.theconversation.com/files/269739/original/file-20190417-139110-34pk5x.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/269739/original/file-20190417-139110-34pk5x.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=237&amp;fit=clip" alt=""></a>
The P. Duff and Sons in 1935 patent. US Patent and Trademark Office
“The housewife and the purchasing public in general seem to prefer fresh eggs,” <a href="https://pdfpiw.uspto.gov/.piw?Docid=02016320&amp;homeurl=http%3A%2F%2Fpatft.uspto.gov%2Fnetacgi%2Fnph-Parser%3FSect1%3DPTO1%2526Sect2%3DHITOFF%2526d%3DPALL%2526p%3D1%2526u%3D%25252Fnetahtml%25252FPTO%25252Fsrchnum.htm%2526r%3D1%2526f%3DG%2526l%3D50%2526s1%3D2016320.PN.%2526OS%3DPN%2F2016320%2526RS%3DPN%2F2016320&amp;PageNum=&amp;Rtype=&amp;SectionNum=&amp;idkey=NONE&amp;Input=View+first+page" target="_blank">the patent reads</a>, “and hence the use of dried or powdered eggs is somewhat of a handicap from a psychological standpoint.”
Even the book sometimes credited as the source of the Dichter anecdote, Something from the Oven: Reinventing Dinner in 1950s America, by Laura Shapiro, says that “if adding eggs persuaded some women to overcome their aversion to cake mixes, it was at least partly because fresh eggs made for better cakes”.
Nonetheless it is the story of Dichter making a profound psychological insight into consumer behaviour that has passed into legend.
Almost seven decades later, the idea of making things more laborious to get consumers to value them more is an established marketing tactic.
We now know it as the “IKEA effect”.
Testing the IKEA effect
The IKEA effect – “that labour alone can be sufficient to induce greater liking for the fruits of one’s labour” – was named in a <a href="https://dash.harvard.edu/bitstream/handle/1/12136084/norton%20mochon%20ariely%20third%20round%5b1%5d.pdf?sequence=3&amp;isAllowed=y" target="_blank">2011 paper</a> in the Journal of Consumer Psychology by Michael Norton, Daniel Mochon and Dan Ariely. They chose the name because products from the Swedish manufacturer typically require some assembly.
Their paper also begins with the cake-mix story. It concedes there might have been other reasons General Mills increased its sales – an alternate view is that the icing on the cake was, in fact, <a href="https://www.bonappetit.com/entertaining-style/pop-culture/article/cake-mix-history" target="_blank">the icing on the cake</a> – but the authors were still enthused by the idea that “infusing the task with labour” was a crucial ingredient.
To empirically confirm this phenomenon, and its limits, they conducted experiments that involved assembling IKEA boxes, folding origami and building with Lego. The results showed participants valued items they assembled themselves more than items assembled by someone else.
The following graph shows the results from one of the experiments, in which participants were asked to fold origami cranes or frogs and then bid to buy the creations. The bidding phase also included origami made by expert folders. They tended to see their own creations as much more valuable than those made by other participants, and almost equal in value to the expert origami.
<a href="https://images.theconversation.com/files/269703/original/file-20190417-147487-1glzp2u.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/269703/original/file-20190417-147487-1glzp2u.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
 Results show participants’ willingness to pay (WTP) for origami frogs and cranes made by themselves or others. Participants saw their amateurish creations as similar in value to experts’ creations, <a class="source" href="https://www.hbs.edu/faculty/Publication%20Files/11-091.pdf" target="_blank">Harvard Business School</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/" target="_blank">CC BY</a>
The experiments also showed the effect had limits.
When participants spent too much time building or deconstructing their creations, or failed to complete the task, their willingness to pay for the item declined.
The following graph shows the results of the experiment in which some participants built an IKEA box, while others were allowed to complete only half the steps required to build the box.
<a href="https://images.theconversation.com/files/269717/original/file-20190417-139107-1sng0vr.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/269717/original/file-20190417-139107-1sng0vr.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
Results shows participants’ willingness to pay (WTP) for assembled IKEA boxes. Those who built their boxes bid more for their creations than did incomplete builders. <a class="source" href="https://www.hbs.edu/faculty/Publication%20Files/11-091.pdf" target="_blank">Harvard Business School</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/" target="_blank">CC BY</a>
Those who got to complete their box valued it much more, shown by their willingness to pay to keep it. “Most importantly,” the paper notes, “this increase in valuation was not limited to only participants who considered themselves DIYers.”
Related, but different, concepts
The IKEA effect is connected to, but not quite the same as, a number of other important economic behaviours.
First, there is the <a href="https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/endowment-effect/" target="_blank">endowment effect</a>, in which simply owning a product increases its perceived value. Though this effect has long been recognised, it was formally named by economist Richard Thaler in a <a href="http://www.eief.it/butler/files/2009/11/thaler80.pdf" target="_blank">1980 paper</a>. Since then many studies have demonstrated that individuals usually want more money to give up something they own than they are willing to pay to acquire a similar item from someone else.
Second is the psychological idea of <a href="https://psychology.iresearchnet.com/social-psychology/attitudes/effort-justification/" target="_blank">effort justification</a>. This goes back to studies in the 1950s. The idea is that an individual who makes a sacrifice to achieve a goal rationalises the effort by attributing greater value to the achievement. In one celebrated study, for example, women made to undergo an embarrassing initiative to join a social group subsequently rated membership of that group higher than those who did not.
Third is personal preference, which is expressed in consumers <a href="http://www.acrwebsite.org/web/acr-content/640/emotional-attachment-to-brands-the-implications-for-marketers.aspx" target="_blank">being attached</a> to particular brands. Being involved in the creative process might be regarded as an extension of this attachment to individual tastes, something companies seek to leverage through customisation options.
In their experiments Norton, Mochon and Ariely were very careful to control for these effects. For example, none of the items they had participants assemble entailed customisation.
Their findings have been supported by subsequent studies that <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-5885.2010.00768.x" target="_blank">disentangle ownership and personal preference</a> from valuing the fruits of one’s labour.
Convenience isn’t everything
Having customers do most of the work, feel great about it, and at the same time perceive they have attained “greater value for money’” is the Holy Grail for marketers.
Even if the Dichter cake-mix story is more legend than history, food and grocery brands are using the IKEA effect to attract new “value-seeking” customers.
Consider the “ready-to-create” meal kit – prepackaged raw ingredients you prepare and cook yourself. These meals seek to balance the desire for convenience with concerns about about healthy eating and the pleasure of cooking.
<img src="https://images.theconversation.com/files/269735/original/file-20190417-139110-4q1u95.jpeg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">
A typical meal kit. Blue Apron
Brands getting in on the action include YouFoodz (known for its convenient “ready-made” meals) launching “<a href="http://www.foodanddrinkbusiness.com.au/news/youfoodz-expands-into-meal-kits" target="_blank">ready-to-create</a>” options, and Pataks (known for its “pre-made” curries in a jar) offering “<a href="https://www.pataks.com.au/products/pataks-curry-kits-2/%5D" target="_blank">curry kits</a>”.
Market research company Nielsen estimates more than <a href="https://www.nielsen.com/au/en/insights/news/2018/unlocking-growth-in-meal-kits" target="_blank">one million Australian households</a> will buy meal kits by the end of 2019.
While many retailers focus their efforts on <a href="https://theconversation.com/aussie-retailers-need-to-adapt-to-a-world-built-on-speed-78184" target="_blank">speedy deliveries</a> and ready-made, convenient solutions, the IKEA effect suggests the secret to success may be to make things a little more challenging.<img src="https://counter.theconversation.com/content/113647/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
Gary Mortimer, Associate Professor in Marketing and Consumer Behaviour, Queensland University of Technology
Frank Mathmann, Lecturer (Assistant Professor), Queensland University of Technology
Louise Grimmer, Lecturer in Retail Marketing, Tasmanian School of Business and Economics, University of Tasmania
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-ikea-effect-how-we-value-the-fruits-of-our-labour-over-instant-gratification-113647" target="_blank">original article</a>.
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The IKEA effect: how we value the fruits of our labour over instant gratification

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EXPERT OBSERVATION
Surprisingly weak Australian inflation has led to expectations the Reserve Bank will soon cut rates. But what’s driving low inflation? Is it really that bad? Why not just lower the inflation target? Will rate cuts help? And what does it mean for investors?
Inflation surprises on the downside again Australian inflation as measured by the CPI was flat in the March quarter and up just 1.3% over the last year. Sure, the zero outcome in the quarter was partly due to a nearly 9% decline in petrol prices and they have since rebounded to some degree. And high-profile items like food, health and education are up 2.3%, 3.1% and 2.9% respectively from a year ago. But against this price weakness is widespread in areas like clothing, rents, household equipment and services and communications.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/4/26/New%20Project%208.jpg" alt="">
Source: ABS, AMP Capital
But why the focus on “underlying inflation”? The increase in the CPI is the best measure of changes in the cost of living. But it can be distorted in the short term by often volatile moves in some items that are due to things like world oil prices, the weather and government administered prices that are unrelated to supply and demand pressures in the economy.
So, economists and policy makers like the RBA focus on what is called underlying inflation to get a handle on underlying price pressures in the economy so as not to jump at shadows. There are various ways of measuring this ranging from excluding items like food and energy as in the US version of core inflation, to excluding items whose prices are largely government administered to statistical measures that exclude items that have volatile moves in each quarter (as with the trimmed mean and weighed median measures of inflation). Right now they all show the same thing ie that underlying inflation is low ranging between 1.2% to 1.6% year on year. The average of the trimmed mean and weighted median measures is shown in the previous chart and is averaging 1.4%. The common criticism of underlying inflation that “if you exclude everything there is no inflation” is funny but irrelevant. The point is that both headline and underlying inflation are below the RBA’s 2-3% target and this has been the case for almost four years now.
What is driving low inflation?
The weakness in inflation is evident globally. Using the US definition, core (ex food and energy) inflation is just 1.8% in the US, 0.8% in the Eurozone, 0.4% in Japan and 1.8% in China.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/4/26/New%20Project%209.jpg" alt="">
Sources: Bloomberg, AMP Capital
Several factors have driven the ongoing softness in inflation including: the sub-par recovery in global demand since the GFC which has left high levels of spare capacity in product markets and underutilisation of labour; intense competition exacerbated by technological innovation (online sales, Uber, Airbnb, etc); and softish commodity prices. All of which has meant that companies lack pricing power and workers lack bargaining power.
Why not just lower the inflation target?
Some suggest that the RBA should just lower its inflation target. This reminds me of a similar argument back in 2007-08, when inflation had pushed above 4%, that the RBA should just raise its inflation target. Such arguments are nonsense. First, the whole point of having an inflation target is to anchor inflation expectations. If the target is just raised or lowered each time it’s breached for a while then those expectations - which workers use to form wage demands and companies use in setting wages and prices - will simply move up or down depending on which way inflation and the target moves. And so inflationary or deflationary shocks will turn into permanent shifts up or down in inflation. Inflation targeting would just lose all credibility.
Second, there are problems with allowing too-low inflation. Mostcentral bank inflation targets are set at 2% or so because statistical measures of inflation tend to overstate actual inflation by 1-2% because statisticians have trouble actually adjusting for quality improvements and so some measured price rises often reflect quality improvements. In other words, 1.3% inflation as currently measured could mean we are actually in deflation. And there are problems with deflation.
What’s wrong with falling prices (deflation) anyway?
Deflation refers to persistent and generalised price falls. It occurred in the 1800s, 1930s and the last 20 years in Japan. Most people would see falling prices as good because they can buy more with their income. However, deflation can be good or bad. In the period 1870-1895 in the US, deflation occurred against a background of strong growth, reflecting rapid technological innovation. This can be called “good deflation”.
However, falling prices are not good if they are associated with falling wages, rising unemployment, falling asset prices and rising real debt burdens. For example, in the 1930s and more recently in Japan. This is “bad deflation”. Given high debt levels, sustained deflation could cause big problems. Falling wages and prices would make it harder to service debts. Lower nominal growth will make high public debt levels harder to pay off. And when prices fall people put off decisions to spend and invest, which could threaten economic growth. This could risk a debt deflation spiral of falling asset prices and falling incomes leading to rising debt burdens, increasing defaults, spurring more falls in asset prices, etc.
The problem for RBA credibility?
The problem for the RBA is that inflation has been undershooting its forecasts and the target for several years now. The longer this persists the more the RBA will lose credibility, seeing low inflation expectations become entrenched making it harder to get inflation back to target and leaving Australia vulnerable to deflation in the next economic downturn.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/4/26/New%20Project%2010.jpg" alt="">
Source: RBA, Bloomberg, AMP Capital
Due to the slowdown in economic growth flowing partly from the housing downturn we have been looking for two rate cuts this year since last December. We had thought that the RBA would prefer to wait till after the election is out of the way before starting to move and coming fiscal stimulus from July also supports the case to wait as does the still strong labour market.
However, with underlying inflation coming in much weaker than expected the RBA its arguably too risky to wait until unemployment starts to trend up. And the RBA has moved in both the 2007 and 2013 election campaigns. So, while it’s a close call our base case is now for the first rate cut to occur at the RBA’s May meeting. Failing that, then in June.
Will the banks pass on RBA rate cuts?
This has been an issue with all rate cuts since the GFC due to a rise in bank funding costs. But most cuts have been passed on largely or in full (the average pass through since the Nov 2011 cut has been 89%), notwithstanding out of cycle hikes. Short term funding costs have fallen lately pointing to a reversal of last year’s 0.1 to 0.15% mortgage rate hikes or at least the banks having little excuse not to pass on any RBA cuts in full.
But will more rate cuts help anyway?
Some worry that rate cuts won’t help as they cut the spending power of retirees and many of those with a mortgage just maintain their payments when rates fall. However, there are several points to note regarding this.
First, the level of household deposits in Australia at $1.1 trillion is swamped by the level of household debt at $2.4 trillion. So the household sector is a net beneficiary of lower interest rates.
Second, the responsiveness to changes in spending power for a family with a mortgage is far greater than for retirees.
Third, even if many with a mortgage just let their debt get paid off faster in response to falling rates this still provides an offset to the negative wealth effect of falling house prices, reducing pressure to cut spending.
Fourth, the fall in rates since 2011 has helped the economy keep growing as mining investment collapsed. And of course,
RBA rate cuts help push the $A lower. So, while rate cuts may not be as potent with higher household debt levels today and tighter bank lending standards, they should provide some help.
Is the RBA out of ammo?
This is a common concern around major central banks. However, they are a long way from being unable to do anything:
the Fed can reverse the 9 rate hikes seen since December 2015 and start quantitative easing again if needed; and both the ECB and Bank of Japan could expand their QE programs. The ultimate option is for central banks to provide direct financing of government spending or tax cuts using printed money. This is often referred to as “helicopter money”. Fortunately, non- traditional monetary policy has worked in the US and so at least these concerns are unlikely to need to be tested. Of course, the RBA still has plenty of scope to cut interest rates if needed (there is 150 basis points to zero) and it could still do quantitative easing if needed so it’s a long way from being out of ammo (not that we think it needs to do a lot more anyway).
Implications for investors?
There are a number of implications for investors. First, low interest rates will remain in place for some time keeping bank deposit rates unattractive. Second, given the absence of inflationary pressure, a 1994-style bond crash remains distant.
Third, the low interest rate environment means the chase for yield is likely to continue supporting commercial property, infrastructure and shares offering sustainable high dividends.
Fourth, an earlier RBA rate cut may bring forward the timing of the bottom in Australian house prices.
Finally, as can be seen in the next chart, low inflation is generally good for shares as it allows shares to trade on higher price to earnings multiples. But deflation tends to be bad for shares as it tends to go with poor growth and profits and as a result shares trade on lower PEs. The same would apply to assets like commercial property and infrastructure.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/4/26/New%20Project%2011.jpg" alt="">
Source: Global Financial Data, Bloomberg, AMP Capital
Dr Shane Oliver is Head of Investment Strategy and Chief Economist at AMP Capital.
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soliver-smf6LQXgW9

Why is inflation such a concern for the RBA - and for us? AMP's Shane Oliver

 Decline in housing prices has led to slowing consumption: RBA's Guy Debelle

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GUEST OBSERVATION
The long debate over the causes of wage stagnation took an unexpected turn last week, when Finance Minister Matthias Cormann described (downward) flexibility in the rate of wage growth as “<a href="https://www.magic1059.com.au/news/national-news/88452-low-wage-growth-not-all-bad-minister" target="_blank">a deliberate design feature of our economic architecture</a>”.
It was a position that was endorsed in a flurry of confusion <a href="https://www.news.com.au/finance/economy/australian-economy/sixteensecond-backflip-turns-interview-into-trainwreck/news-story/fe62507c8e961d6381f510133cd68563" target="_blank">16 seconds after it had been rejected</a> by Defence Industry Minister Linda Reynolds.
Cormann had said policies aimed at pushing wages up could cause “massive spikes in unemployment”.
The ease with which Reynolds was trapped into at first rejecting and then accepting what her ministerial colleague had said flowed from the fact that Cormann had broken one of the standing conventions of politics in Australia, and for that matter, the English-speaking world.
For more than forty years, both the architecture of labour market regulation and the discretionary choices of governments have been designed with the precise objective of holding wages down.
These policies have been quite successful, as can be seen from the graph.
However, at least until recently, there has been bipartisan agreement on at least one aspect of them – that no one should mention their role in holding back wages.
<hr>
<a href="https://images.theconversation.com/files/264070/original/file-20190315-28499-eksq75.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/264070/original/file-20190315-28499-eksq75.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
<a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0" target="_blank">ABS Australian Accounts, seasonally adjusted</a>
<hr>
Instead, the decline in the wage share of national income has been variously blamed on:
<ul>
<li>technology</li>
<li>immigration</li>
<li>imports from China and, more recently,</li>
<li>the end of the mining boom.</li>
</ul>
None of these explanations stand up to scrutiny.
The idea that technology is driving the wage share down is perhaps the most popular.
But technological change has been continuous, if uneven, since the beginning of the Industrial Revolution in the 18th century. Most of the time, workers have shared in the resulting productivity gains.
There have however, been a number of exceptional periods in which workers have been harmed.
They have been times when the balance of power had favoured employers. At those unusual times, any kind of disruption, whether caused by new technology or not, has had the potential to enable employers to break working conditions and cut wages.
Right now, for example, there is no necessary reason for the ability to do business over the Internet to harm workers. In many ways it empowers workers by reducing the information advantages of big employers.
But in an environment where unions are weak and working conditions are vulnerable to erosion, the outcome is firms like Airtasker, where workers bid against each other to perform outsourced tasks, <a href="https://theconversation.com/all-care-and-no-responsibility-why-airtasker-cant-guarantee-a-minimum-wage-76943" target="_blank">often for less than the minimum wage</a>.
There is nothing new about this kind of working arrangement.
It could be seen outside the wharves on Sydney’s “<a href="https://theconversation.com/all-care-and-no-responsibility-why-airtasker-cant-guarantee-a-minimum-wage-76943" target="_blank">Hungry Mile</a>” in the 1930s, where workers went from wharf to wharf each day hoping for work, or today on street corners in the United States, where (often undocumented) construction workers gather in the mornings hoping to be picked for work.
But if technology isn’t to blame, what is?
The overlong shadow of the overhang
The real story begins in the early 1970s, when there was an upsurge in inflation associated with the breakdown of the post-war <a href="https://en.wikipedia.org/wiki/Bretton_Woods_system" target="_blank">Bretton Woods</a> system of fixed exchange rates , and soaring prices in commodity markets including that for oil. The result was a “wage-price spiral” as both wages and prices rose at unexpected annual rates of more than 10%.
In a nation with a history of strong trade unions, decades of full employment, and the boundless faith in the future forged by the 1960s, wages grew faster than prices as both spiralled upwards.
By the time rising unemployment began to bite, and inflation slowed down, the wage share of national income had risen to an unprecedented 62%.
Reining in this “<a href="https://www.rba.gov.au/publications/rdp/1988/pdf/rdp8806.pdf" target="_blank">real wage overhang</a>” became the central preoccupation of macroeconomic policy throughout the 1970s and 1980s.
This made sense at the time. But, as in other fields, ideas formed in the 1970s and 1980s continued to dominate the thinking of policymakers long after they had either been proven to be failures or rendered obsolete by changing circumstances, as was the case with policies designed to hold back wages.
The policies had several elements. There were a series of changes in industrial relations law, most of which have attacked unions and weakened the bargaining power of labour.
The Fraser government introduced Sections 45D and 45E of the Trade Practices Act <a href="https://www.legislation.gov.au/Details/C2004A02274" target="_blank">banning secondary boycotts</a>, that is, action in solidarity with other workers. Fraser also created the Industrial Relations Bureau, the first of a series of industrial “police forces”.
On its election in 1996, the Howard government introduced the <a href="https://www.legislation.gov.au/Details/C2006C00104" target="_blank">Workplace Relations Act 1996</a> which extended scope for non-union agreements. After winning a Senate majority in 2004, Howard introduced <a href="https://en.wikipedia.org/wiki/WorkChoices">WorkChoices</a> which limited the scope of collective bargaining, and wound back protections against dismissal.
The Industrial Relations Bureau maintained at least a pretence of impartiality. By contrast, the organisations created by the Abbott and Turnbull governments (the Registered Organisations Commission and Australian Building and Construction Commission) have been so nakedly anti-union that they have repeatedly <a href="https://www.afr.com/news/politics/police-wanted-to-prosecute-over-awu-raids-leak-senate-estimates-hears-20190218-h1bdmu">broken the law</a> <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2017-09-13/abcc-nigel-hadgkiss-resigns-over-breach-labor-pressures-cash/8942558" target="_blank">they are supposed to uphold</a>.
Labor governments have wound back some of the most extreme measures, but have not changed the general direction of policy.
Even measures that appeared superficially favourable to workers turned out differently. For example, in 1993 the Keating government introduced the concept of “protected industrial action”.
It was some time before it became apparent that the result was <a href="https://www.theguardian.com/business/grogonomics/2015/mar/16/industrial-action-is-at-near-record-lows-but-businesses-will-still-blame-unions" target="_blank">to abolish any general right to strike</a>, something that exists in almost every other democratic government.
As Minister for Workplace Relations, Bill Shorten introduced measures that were pitched as protecting penalty rates through a review process undertaken by the Fair Work Commission. A few years later, in a highly politicised process, the Commission <a href="https://www.liberal.org.au/latest-news/2017/02/23/fair-work-commission-review-penalty-rates" target="_blank">used the process to cut penalty rates</a>.
Coalition governments have also used the power of the state directly against unions. Notable examples include the string of <a href="https://www.royalcommission.gov.au/royal-commission-trade-union-governance-and-corruption" target="_blank">royal commissions</a> created by the Abbott government and the use, in 1998, of ex-military strikebreakers to break the Maritime Union of Australia. Their training and deployment was facilitated by a government consultant who <a href="https://www.theage.com.au/technology/battle-on-the-waterfront-20070512-ge4vby" target="_blank">worked with the major waterfront employer, Patricks</a>.
orchestrating the offshore training of the replacement workforce through the actions of consultant Stephen Webster and other shadowy ex-military figures.
Finally, macroeconomic management has operated on the basis that any increase in wages is a danger signal requiring a tightening of fiscal and monetary policy. A notable example, was the warning by then Employment Minister Eric Abetz in January 2014 months after taking office that Australia faced a “<a href="https://ministers.jobs.gov.au/abetz/industrial-relations-after-thirty-years-war-address-sydney-institute" target="_blank">wages explosion</a>”.
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<a href="https://images.theconversation.com/files/264082/original/file-20190315-28483-4y15qz.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/264082/original/file-20190315-28483-4y15qz.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
 <a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/6345.0" target="_blank">ABS Wage Price Index</a>
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Far from “exploding”, wage growth slid and hasn’t recovered.
More striking than his failed prediction, was Abetz’ assumption, taken for granted in policy debate, that any substantial increase in wages would be disastrous.
It is only in the last few years that this assumption, inherited from last century, have been challenged.
The Reserve Bank in particular has become an advocate for higher wage growth.
Yet as Cormann’s incautious outbreak of truthtelling has shown, the view has yet to percolate through to Australia’s elites.
<hr>
John Quiggin, Professor, School of Economics, The University of Queensland
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/ultra-low-wage-growth-isnt-accidental-it-is-the-intended-outcome-of-government-policies-113357" target="_blank">original article</a>.
The <a href="https://www.assa.edu.au" target="_blank">Academy of the Social Sciences in Australia</a> is one of Australia’s four learned academies. The ASSA coordinates the promotion of research, teaching and advice in the social sciences, promotes scholarly cooperation across disciplines, comments on national needs and priorities in the social sciences, and provides advice to government on issues of national importance.<img src="https://counter.theconversation.com/content/113357/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
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Ultra low wage growth isn’t accidental - it is the intended outcome of government policies

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GUEST OBSERVATION
This is an edited extract from Jacqui Dwyer, head of the RBA's information department, address to the Business Educators Australasia Annual Meeting.
Education in Australia is receiving a lot of attention at present. Against the background of Australia's core learning skills at school, there is much debate among educators about what we should teach, how we should teach it and how we should assess it. In terms of ‘what’ should be taught, the current debate provides a good opportunity to raise awareness of economics as a valuable field of study.
Economics is relevant to us all. Every day our lives are affected by economic decisions – ones we make personally and ones that are made by others. Economics is about how individuals and societies choose to allocate their limited resources to meet their needs and wants. It's about how we respond to incentives, make trade-offs, weigh up costs and benefits – and how we decide what is efficient and what is fair. Economics contains some powerful concepts and useful frameworks. It can help us better understand the choices involved in many personal decisions we make, and better understand the economic conditions and policies that affect our lives.
Given the relevance of economics, and the social benefits of economic literacy, how widely is it studied? Be it at high school or university, economics was once widely offered and widely chosen – but that is no longer true. This is weighing on both the size and diversity of the student population, with implications for economic literacy and the longer-term health of the economics discipline in Australia.
The High School Scene
First, I want to remind you of some of the key features of the economics landscape at Australian high schools.
Nationally, there has been a dramatic decline in Year 12 economics enrolments over the past 25 years of around 70%. Our case study of enrolments in New South Wales (for which we have the most detailed data), shows an even greater fall of 75% over the same period. This fall was concentrated in the early 1990s when economics was displaced by the introduction of business studies in 1991 – arguably a less analytically demanding and vocationally oriented subject (Graph 1).
<img src="https://www.urban.com.au/images/2018/5/29/G%201.gif" alt="">
In 1991, economics was the third most popular subject choice in New South Wales, surpassed only by English and mathematics. It was also taught in nearly all schools. These days, we find that it is taught in less than one-third of government schools and a little over half of non-government schools. Consistent with economics now being less available as a subject choice in government schools, there are sharply declining economics enrolments, especially in the comprehensive schools that the majority of students attend (Graph 2).
<img src="https://www.urban.com.au/images/2018/5/29/G%202.gif" alt="">
Another defining feature of the high school scene is the fall in the share of female students enrolled in economics. Again, in the early 1990s, there were roughly even shares of male and female students in economics classrooms, whereas these days there are roughly twice as many male students as female students (Graph 3). This gender imbalance is more pronounced than for STEM (science, technology, engineering and mathematics) and contrasts with the high and stable ratio of female to male students in the rival subject of business studies.
 
<img src="https://www.urban.com.au/images/2018/5/29/G%203.gif" alt="">
So over the course of a generation, there has been a pronounced fall in the size and diversity of the economics student population at Australian high schools. Has the same pattern been evident at universities?
The University Scene
In looking at university enrolments in economics, it is necessary to first establish what we mean by economics. At university, economics can be taken as a degree, a major or a subject within many different courses. We rely on each university's judgment about ‘how much economics’ counts as an economics enrolment when they report on this to the Department of Education and Training (DET).<a id="r2" href="https://www.rba.gov.au/speeches/2018/sp-so-2018-05-26#fn2"> </a>
Graph 4 compares economics enrolments in Australian high schools with university enrolments. It shows that while there has been a large fall in the level of economics enrolments at high school, economics enrolments at university have been fairly constant since the early 1990s and have fallen slightly since 2001 (when we have a series break in our data because the classification structure of subjects changed).
<img src="https://www.urban.com.au/images/2018/5/29/G%204.gif" alt="">
But how does this compare with growth in other subjects and the overall student population at university? Since 2001, while economics enrolments have edged down, enrolments in rival subjects have expanded, as has the total student population. In other words, economics is also being displaced at university by business-oriented subjects (banking, finance, management and commerce) and is lagging STEM in its ability to attract students (Graph 5). While these courses teach valuable skills, and some include similar skills to those learned in economics, economics students are a declining share of the university student population.
 <img src="https://www.urban.com.au/images/2018/5/29/G%205.gif" alt="">
One question that my colleagues ask is whether the declining share of students studying economics at uni reflects declining demand for economists in the job market. We actually don't know much about the level of demand for economic skills. But we do know that fewer universities are offering economics and half of those that do are in New South Wales and the ACT (Graph 6). Institutional concentration is not necessarily a problem – those universities that continue to offer economics may have high-calibre programs and attract high-calibre students. However, such concentration will weigh on the diversity of the economics student population if these universities do not have inclusive approaches to accepting students. Furthermore, the need to relocate to study economics will be a barrier for some students who might otherwise have chosen the subject.
 <img src="https://www.urban.com.au/images/2018/5/29/G%206.gif" alt="">
 
So let's look at some explicit indicators of diversity in economics. At university, there are more than twice as many male students as female students who study economics. And while there has always been a gender gap at university (unlike at high schools where gender balance once existed), this gap has widened over the past decade and is even more pronounced than presently at high school (Graph 7).
 <img src="https://www.urban.com.au/images/2018/5/29/G%207.gif" alt="">
Another important element of diversity is socio-economic status. A striking feature of the university data is the share of students studying economics who come from high socio-economic backgrounds – currently over 55%. This share has been increasing over the past twenty years, just as it has for economics students at high school (Graph 8). Furthermore, the share of university economics students from backgrounds of high socio-economic status exceeds that for rival subjects, and it significantly exceeds that for STEM students and the student population overall (Graph 9).<a id="r4" href="https://www.rba.gov.au/speeches/2018/sp-so-2018-05-26#fn4"> </a>
 <img src="https://www.urban.com.au/images/2018/5/29/G%208.gif" alt="">
<img src="https://www.urban.com.au/images/2018/5/29/G%209.gif" alt="">
 
What's Wrong with This Picture?
It is of concern to see the drift toward a smaller and more homogenous population of economics students – both at school and university. The number of students who study economics influences the level of economic literacy in society. And the diversity of those students ultimately influences the collective ability of the economics profession. Diversity has bearing on the economic questions that we ask, our approaches to answering them how we action solutions. Because those who study economics shape the discipline and determine economic policies, there are wider social benefits when the population of economics graduates is broadly representative of society.
The importance of diversity in the study of economics is increasingly being voiced by central bankers. The Chief Economist of the Bank of England, Andy Haldane, has been vocal about this issue. So too have researchers Amanda Bayer and David Wilcox who, in a US Federal Reserve discussion paper, identify pervasive imbalances in economics education in the United States and argue that this is a matter that warrants urgent attention.<a id="r6" href="https://www.rba.gov.au/speeches/2018/sp-so-2018-05-26#fn6"> </a>
So what has been driving the fall in size and diversity of Australia's economics student population? A number of forces are at work. To help inform the Bank's public education program, we have done a lot of data analysis and liaison with educators, education authorities and students. There are some dominant themes.
Economics has become less prominent. In the 1980s and early 1990s, economics was the subject of national debate. There was the lived experience of recession and big economic events like the floating of the dollar and the deregulation of labour and financial markets. So prevalent was the discussion of economics that former Prime Minister Paul Keating once said ‘I guarantee if you walk into any pet shop in Australia, the resident galah will be talking about microeconomic policy’. With Australia having experienced over a quarter of a century of continuous economic expansion, there is now a less involving – and less mature – national conversation about economics.
A relatively benign economic environment appears to have reduced the curiosity of students in seeking to learn about economics. However, the single largest factor weighing on the study of economics appears to have been the emergence of business studies as a subject choice in schools, and the growing dominance of business schools at universities.
When compared with rival subjects, economics has an image problem. Too few students understand what economics is and how it is relevant to them. Consequently, in a cluttered curriculum – at both high school and university – they are less likely to choose it. And if economics is no longer a core subject in many courses, the incentives to choose it fall further.
A key consideration in making a subject choice is its employability, especially given the effort and expense involved in investing in education. Many students - and importantly their parents - consider economics to be less employable than business-oriented subjects. They value subjects and degrees with a clear pathway to a specific occupation (e.g. by studying accounting you can become an accountant). However, the data tell us that graduate starting salaries are higher for economic students than students who take business-oriented subjects and that full-time employment rates are broadly similar. In fact, the sorts of skills acquired in the study of economics – such as analytical and problem solving skills – are likely to be highly valued as the nature of work changes (as explained by the Bank's Head of Economic Analysis, Alex Heath, in her speech on <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-12-01" target="_blank">Skills for the Modern Workforce</a>). It is perhaps because economics graduates are less likely to be employed in their subject field that the misperception about employability arises.
Role models are also important, and the lack of visibility of what an economist does results in a shortage of role models. Furthermore, to the extent that economists are visible, too often they are a homogenous bunch. This can have the effect of discouraging students, particularly females and those from minority backgrounds.
The lack of diversity in the economics profession speaks to implicit biases that also manifest themselves in the presentation of economic content – ranging from the lower rates of success in publication experienced by female economists, through to lower representation of females in economic examples in textbooks. Much has been made in recent years of the fact that females (or minority groups) rarely appear in textbooks, other than in stereotypic roles. This can be discouraging to female students and others who are not represented.
But in addition to all these factors that influence the choices a student might make, there are disincentives facing schools and universities in offering economics.
At the end of the day, schools and universities need to think about the value proposition of offering subjects. At high schools, where the fall in enrolments has been dramatic, principals need to assess whether economics enrolments are at a critical mass to support classes. They also need to have teachers who are equipped to deliver these courses. Over the past 20 years there has been a decline in the number of teachers who have themselves studied economics at university. With teachers increasingly teaching economics ‘out of field’, their confidence in delivering economics courses can be low.
Teaching economics at school is difficult. The concepts are analytically challenging and the script is always changing, given the need to include current economic conditions. The requirement for teachers to be across economic developments is demanding, especially if they are teaching out of field. Business studies, on the other hand, is easier to teach and has the (incorrectly) perceived benefit of greater employability. Consequently, in many schools, teaching resources have been allocated to business studies rather than economics.
Universities are faced with similar decisions about allocating resources. Additionally, their choices are influenced by government decisions that affect teaching revenue. Most domestic undergraduate students occupy ‘Commonwealth supported places’ where fee revenue is made up of a student contribution plus a government contribution. Economics is in the unfortunate position of being in the course group (along with law, commerce, accounting and administration) that has the highest student contribution and the lowest government contribution (Graph 10).
 <img src="https://www.urban.com.au/images/2018/5/29/G%2010.gif" alt="">
 
On top of this, analysis by Deloitte Access Economics suggests that, on average, universities only roughly break even in delivering economics to domestic students. But universities gain substantial revenue from courses offered to overseas students (where fees for economics and business courses can be twice those charged to domestic students). The business-oriented courses of commerce and management in Australia now attract around one-third of total overseas student enrolments; in fact, in 2015, there were 70 overseas students enrolled in commerce and management for every overseas student enrolled in economics. Consequently, business schools have been described as the ‘cash cows’ of Australian universities with large profits that are redistributed to fund other university activities, encouraging administrators to focus on offering business courses over economics.
The decision of administrators to favour business courses over economics is reinforced by lower completion rates in economics than in rival courses and university courses overall. Economics also disappoints on other metrics considered by administrators, such as rankings in research output.
A combination of these factors has left an entire generation of students less engaged with economics, less educated about it and potentially less equipped to understand or react to changes in their economic environment.
The Bank's Response
The Bank has always been committed to supporting people who want to learn more about economics and the Australian economy. Our observations about developments in economics education encouraged the establishment of the Bank's public education program. The program is still in its infancy, and we are grateful to you for the role you have played in helping us understand the needs of educators and students as we develop our educational resources and activities. In the course of doing this, we have learned much about how inaccessible economics can be and how much needs to be done to address that.
We have developed a series of resources that are designed to support students and educators, as well as being relevant for more general audiences. You can see these on the education section of the Bank's website. Our Ambassador program is well established with a group of young Bank economists delivering talks to students and educators across the country, including going into classrooms. We are out and about more, explaining what economics is, providing insights into what we do as economists and hopefully providing some useful role models. (This includes promoting awareness of role models outside the Bank, such as prominent Australian <a href="https://www.rba.gov.au/education/resources/women-in-economics" target="_blank">women in economics</a>.)
On more formal aspects of our program, we have made a <a href="https://www.rba.gov.au/publications/submissions/education/submission-to-nesa-review-of-commerce-years-7-10-syllabus/" target="_blank">submission</a> in support of economics being included in the middle years of high school in New South Wales. And the Bank is now an accredited provider of professional development for economics teachers. In fact, we look forward to seeing some of you at our annual Teacher Immersion Event next month.
Economics is relevant to students in many ways that they may not explicitly recognise. Students have great interest in understanding their own material welfare and that of society more broadly. They are interested in the personal and collective choices that determine such welfare, now and in the future. This all relates to economics. We need to make students aware of the ways in which economics can inform and empower them.
From improved economic literacy in the community, through to improved design of public policies, economics education delivers significant social benefits. In other words, there are civic returns to studying economics. Your role in encouraging that study is very important.
Jacqui Dwyer is head of the Reserve Bank of Australia's information department.
For the original speech, <a href="https://www.rba.gov.au/speeches/2018/sp-so-2018-05-26" target="_blank">click here.</a>
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What happened to the study of economics? RBA's Jacqui Dwyer

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GUEST OBSERVATION
Business conditions in Australia have been strong enough to see a surge in company tax revenue that led Treasurer Scott Morrison to outline cuts to personal income taxes over the next seven years in Tuesday’s federal budget.
Those same robust business conditions were reflected in the National Australia Bank Business Conditions Index which was up sharply in April to 21 points (up 6 points from the previous month). This puts it at the highest level in twenty years.
<img src="https://images.theconversation.com/files/218445/original/file-20180510-34027-1jwytm7.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">
NAB chief economist Alan Oster said of the figures:
"The record high in the April survey simply reinforces what has been evident since the middle of last year, that business activity in Australia is robust…I see the business survey as indicative as why the government appears to be rolling in corporate tax revenue."
In the United States, the Job Openings and Labor Turnover Survey in March showed a surge of job openings - up 472,000 to 6.55 million. That was the highest reading on record. It also showed more workers voluntarily leaving jobs. This is generally regarded as strong sign of worker confidence and is indicative of looming wage inflation.
The US Producer Price Index rose just 0.1% in April according to the Bureau of Labor Statistics, much lower than estimates of 0.3%, the level of growth in March. This put the index up 2.6% over the last 12 months, down from 3.0%.
This eased concerns about rising inflation that have been a major focus of discussions about interest rates at the Federal Open Market Committee at recent meetings. That could make the Fed less likely to raise rates quickly, though the tightening path still seems likely.
All eyes will be on the May 10, inflation statistics release to see if there is less heat than the Fed has seemed to fear, especially with unemployment now running at 3.9%.
Adding to this, China’s Producer Price Index dropped by 0.2% from February, putting the annual rate at 3.1%, the weakest level since October 2016.
Economists were looking for an annual increase of 3.2%, down from 3.7% in February. Because China is such a significant global exporter, the lower Producer Price Index should ease any inflationary pressures in other countries. In other words, China is exporting less inflation.
China’s Consumer Price Index actually fell 1.1% last month, putting the annual rate at positive 2.1%. Last month’s figures in part reflect the timing of Chinese New Year, so one shouldn’t read too much into them. On the other hand, any softening of the Chinese economy is a big deal for Australian exporters and our economy generally.
The coming months overseas will be very revealing. We will get a better handle on whether there are genuine inflationary pressures in the US - or whether perhaps there is a new normal. That will affect short-term interest rates, but also says something about where those rates are likely to move back to in the cycle.
We will also get a better fix on the Chinese economy, at least in terms of growth numbers. What still remains opaque is the health of China’s financial sector. That remains a significant concern.
Both the US and China will factor heavily into two key things in Australia. The first is, of course, the RBA’s interest rate decisions later this year. The second is the key number in the federal budget - the 3.0% real GDP growth assumption that underpins the forecast return to surplus and the rationale for the personal income tax plan.
<img src="https://counter.theconversation.com/content/96357/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">At least for the next few months, what happens overseas will be more important for the Australian economy than domestic factors per se.
Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-how-inflation-in-china-and-the-us-could-affect-australia-96357" target="_blank">original article</a>.
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rh-YsoTT2xMuQ

How inflation in China and the US could affect Australia: Richard Holden

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The annual rate of economic growth eased in the December quarter of last year. But that is to be expected – figures bounce around from month to month and quarter to quarter. And it is even more understandable given the length of our record economic expansion. But economic growth is likely to lift over 2018. We share the Reserve Bank’s view that growth will be stronger this year than last year. The economy is tipped to grow by 2.9 per cent in 2018 after 2.3 per cent growth in 2017.
The release of quarterly economic growth figures is a good time to take stock. Australia has a record economic expansion with record low interest rates, below-target inflation and a jobless rate nearing a level that is regarded as “full employment”. No other advanced economy has experienced an economic expansion as long as we are enjoying in Australia. Remarkable.
Consumer spending finished 2017 strongly and will be supported over 2018 by a stronger job market, low interest rates and slightly firmer wage growth. Business spending will be supported by record profitability, domestic infrastructure projects and a buoyant global economy.
Productivity slowed in the December quarter but that is to be expected given the extraordinary lift in employment over the year. Once the new workers get up to speed, they should – in theory – be boosting output and lifting economic growth. It is an area to watch over 2018.      
It is always important to remember that two months have passed since the economic growth figures. And more recent data suggests the economy has started 2018 with solid momentum.
The Reserve Bank Governor again said this morning that the next move in interest rates was likely to be up. But there is no reason to either cut or lift interest rates at present. A further period of interest rate stability lies ahead, and the record low interest rates will be highly supportive of continued firm and sustainable economic growth.
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Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>. 
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jrobinson-rf4aSBido9

Economic growth likely to lift over 2018: CommSec

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GUEST OBSERVER
When Katherine Hunt’s dad asked her whether or not he should invest in Bitcoin, alarm bells rang, first she thought “he’s a musician”.
Hunt is a lecturer in accounting at the Griffith Business School, and as someone who knows the five stages of a bubble and crash, she was worried when it seemed everyone was thinking they needed to “get in on” Bitcoin.
“The stock market is a manifestation of the psychology of everyone who is investing, so of course there is going to be these crazy stages,” Hunt says.
There is a boom, as momentum behind a new stock or asset speeds up and the media starts to cover it, fuelling its price rise.
Then the euphoria sets in, the value of the asset skyrockets and people start to make a profit. But looming around the corner is the panic.
Investors feel the last phase of a crash far more than they do the elation of the price rising, Hunt says. Panic breeds more panic and the price falls.
Hunt is seeing this pattern play out with the stocks of the more well known gig economy businesses like Airbnb and Uber. These businesses now enjoy the privilege of being the only, or one of a few of their kind, in the marketplace. But Hunt says this can’t last.
“In an open market that’s not the case at all, there’s always going to be competition and these companies will fall. It’s just probably that they’ll fall in 30 or 40 years, not necessarily tomorrow,” she says.
Of course this is all easier to see in hindsight.
Remembering the global financial crisis
John Crosby, now a senior lecturer in finance at the University of Technology Sydney, was once working as an investment banker at Lloyds of London in 2007 when he noticed a news story on losses financial services company HSBC was reporting from its subprime mortgages.
“I thought, that could be quite bad,” Crosby recalls.
At the time volatility was low and it seemed like everything was going along fine. But Crosby overheard a coworker who looked after the banks’ various branches asking people to move any sums to deposit to London.
“That wasn’t normal right? It was perfectly normal that you did business with anybody you wanted to, unless there was a real credit risk issue with the bank,” he says.
Crosby realises now that his coworker knew other banks were carrying toxic debt that would eventually kick off the global financial crisis.
When it came to 2008 the real problems became clear and it was more of a question of which bank would fall next, he says.
“People were way too complacent before the crisis and then during the crisis it’s one of blind panic, thinking everyday things are going to get worse. Whereas in reality there was light at the end of the tunnel,” Crosby says.
By then Crosby was working at financial services company UBS and thousands of people were being laid off. In 2009 the company decided to hire half of those employees back.
Past theories about what causes crashes
The benefit of hindsight also shows what sort of speculation leads to market crashes. Before crashes were well understood, economists had to grapple with what they thought might be causing a crash.
In the 19th century, economist William Stanley Jevons believed that sunspots (hyperactive radiation on the sun) could be the key to understanding crashes.
“He was interested to find out that the cycle of sunspots was very similar…as the trade cycle back on earth,” says Simon Ville, a professor of economic and business history at the University of Wollongong.
Of course this theory was later discredited, but there have been bubbles over some very ordinary assets in the past.
Ville explains that tulips were at the centre of the first market bubble and crash in recorded history. Tulips became high fashion in the Netherlands, in the early 17th century, but because it took a while for these plants to grow it was very much like the future markets we see today in modern finance.
“That inevitably creates a sense of uncertainty and a sense of speculation, ‘what are you actually buying? Will you get the full value of what you’re paying for?’,” Ville says.
<img src="https://counter.theconversation.com/content/88688/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">Of course people started paying more and more for tulips, until it took someone’s life savings to buy one bulb. Ultimately there was a point where euphoria turned to panic and the climate changed from optimism to pessimism. This is when the price crashed, and the bubble burst.
Callum Halliday, Editorial Intern, The Conversation.
Eleanor Harrison-Dengate, Editorial intern, The Conversation. 
Jenni Henderson, Section Editor: Business + Economy, The Conversation.
Josh Nicholas, Deputy Editor: Business + Economy, The Conversation.
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/what-happened-to-the-price-of-bitcoin-the-truth-behind-big-bubbles-and-crashes-88688" target="_blank">original article</a>.
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