National diversified developer Fortis has officially launched Crest &amp; Walker, its latest Brisbane apartment development, with construction now underway on the 20-storey Newstead project.

Award-winning builder BINAH has commenced construction on the Bureau^Proberts-designed building, which will deliver a limited collection of 65 two and three-bedroom apartments on Kyabra Street.

[smartcode_project:default project_id=145922 project_image_fid=373556]

The project marks Fortis' fourth active residential development in Brisbane, following River House, which is nearing completion, alongside projects in New Farm and Hamilton as the national developer continues to expand its South East Queensland pipeline.

Fortis General Manager – Development Queensland Dan Boman said Crest &amp; Walker reflects the developer's long-term commitment to delivering design-led residential projects in Brisbane's established inner-city suburbs.

"We're proud to be strengthening our presence in Brisbane with Crest &amp; Walker, particularly in such a sought-after lifestyle destination as Newstead," Boman said.

"Every Fortis project is shaped by its context, and we approach each one with the respect and care it deserves.

"Our focus is always on creating places that feel connected to their neighbourhood and elevate the everyday experience for residents. Newstead continues to evolve as one of Brisbane's most sought-after urban communities, and Crest &amp; Walker reflects our ambition to contribute meaningfully to that story."

[smartcode_project:default project_id=145922 project_image_fid=373559]

Positioned between Gasworks Plaza and James Street, <a href="https://www.apartments.com.au/new-apartments/crest-walker-newstead-12-kyabra-street-newstead-qld-4006">Crest &amp; Walker</a> has been designed as a boutique residential address offering privacy and generous living spaces within one of Brisbane's most established lifestyle precincts.

The building features a contemporary brick podium softened by integrated landscaping, while the upper levels are characterised by restrained architecture and enduring materiality. Interiors have been designed to maximise natural light, acoustic performance and long-term liveability.

[smartcode_project:default project_id=145922 project_image_fid=373583]

Residences comprise spacious two and three-bedroom floorplans, with two-bedroom apartments priced from $1.55 million and three-bedroom, half-floor residences from $3.95 million.

Residents will have access to a wellness-focused rooftop featuring a swimming pool, sauna, steam room, landscaped dining spaces and outdoor lounge areas overlooking Newstead and the Brisbane CBD.

[smartcode_project:default project_id=145922 project_image_fid=373571]

Sales are being managed by Slaite Projects, with Fortis expecting strong demand from owner-occupiers seeking a high-quality, design-focused apartment in one of Brisbane's most tightly held inner-city suburbs.

Completion of Crest &amp; Walker is slated for late 2028.

[smartcode_project_cta:default project_id=145922]

Joel Robinson

Fortis expands Brisbane pipeline with launch of Crest & Walker in Newstead

The enormity of delivering a true skyscraper in Australia's new development market is often overlooked.

It has taken the best part of a decade since plans for Chevron One were first unveiled, but the 52-storey tower is now complete, with residents collecting their keys and moving into what has become one of the Gold Coast's most recognisable new landmarks.

Rising 127 metres above Chevron Island, Chevron One stands almost twice as high as any other building on the island. Its scale places it alongside the trio of towers at Jewel, arguably the last truly significant addition to the central Gold Coast skyline when they were completed around six years ago.

While there are several developments underway around a similar height to Chevron One, they are more concentrated within clusters of the highest towers in the city. The fact Chevron One sits within a developing precinct, looking back at the other high-rise developments in Surfers Paradise and Broadbeach, makes it a different proposition altogether. It will certainly become a reference point on the Gold Coast skyline.

[smartcode_project:default project_id=6515 project_image_fid=68833]

Developer Bensons Property Group is behind the 52-storey tower, which has just shy of 250 apartments, along with an exhaustive list of resident amenity spread across what is the largest development site ever assembled on Chevron Island.

The tower has been the talk of the town for years, says Ray White Projects Gold Coast agent Caitlin Rosenboom, who is selling the remaining apartments.

"People have been watching Chevron One go up for years," Rosenboom says, adding that many prospective buyers have been surprised by the scale of the views once they step inside.

"It's only when they walk through a completed apartment that they truly understand the position of the building," Rosenboom says.

"The views are jaw-dropping. Whether you're looking east over the ocean, across Surfers Paradise, along the river systems or out to the hinterland, every level offers something different but equally impressive."

[smartcode_project:default project_id=6515 project_image_fid=360215]

One of Chevron One's defining advantages is its location on the eastern side of Chevron Island on Stanhill Drive, a position which protects the views forever.

"There's only one row of houses between Chevron One and the water, and the height restrictions along the river means views from Chevron One can never be built out,"&nbsp;Rosenboom says.

While new apartment developments continue to emerge across the Gold Coast, Rosenboom says opportunities to secure a completed apartment with this level of outlook are becoming increasingly rare.

"The size of the site is something that would be incredibly difficult to replicate today," she says.

"That's allowed Chevron One to deliver the sort of amenity, open space and resident facilities that very few projects can offer. There are not many completed apartment buildings on the Gold Coast right now that can compete with the combination of scale, quality and amenity."

[smartcode_project:default project_id=6515 project_image_fid=68839]

There's around 2,000 sqm of amenity solely for the use of residents of Chevron One. Club One features a uniquely shaped swimming pool that mirrors the footprint of the building itself, set within a extensively landscaped gardens. There's also an indoor pool and spa, a fully equipped gym with a Pilates room, a yoga garden, a bookable private dining area and lounge that can host up to 30 people, and a 24-hour concierge service.

As for the buyers, Rosenboom is fielding enquiry from everywhere: Sydneysiders and Melburnians looking at the new and off-the-plan market following the changes in the Federal Budget, as well as those looking to relocate, through to South East Queenslanders seeking either a permanent home or a weekender bolthole.

"The Gold Coast lifestyle continues to resonate with people relocating from the southern states, and when they see the views and the quality of what's been delivered at Chevron One, it becomes very easy for them to understand the appeal," Rosenboom says.

A diverse mix of one, two and three-bedroom apartments remain available, with each offering "something a little different", be it the orientation and views, configuration, or level, to suit a wide variety of buyers.

The remaining apartments are ready to inspect in person, by appointment.

[smartcode_project_cta:default project_id=6515]

A decade in the making: Residents to move into Chevron One as construction wraps up

A general rule of thumb in new apartment developments is that the penthouses get the rooftop.

It's a formula that's become commonplace across Australia's apartment market. Residents might have access to a pool, gym or barbecue facilities on a dedicated lower level, but the most desirable outdoor spaces are typically reserved for the highest-priced homes at the top of the building.

<a href="https://www.apartments.com.au/developers/sherpa-property-group">Sherpa Property Group</a> has taken the opposite approach.

Rather than dedicating the rooftop to a handful of buyers, the Gold Coast developer has made it the centrepiece of its Flourish collection, creating expansive shared spaces from the best vantage point in the building.

The philosophy has reached its most ambitious expression at <a href="https://www.apartments.com.au/new-apartments/flourish-soleira-palm-beach-1150-1160-gold-coast-highway-palm-beach-qld-4221">Flourish Soleira</a> in Palm Beach, where two rooftop precincts connected by a skybridge will deliver one of the most extensive lifestyle offerings seen in a residential apartment project on the Gold Coast.

[smartcode_project:default project_id=150017 project_image_fid=374053]

"We're seeing a clear move toward developments that offer more than just an apartment," Sherpa Group founder Christie Leet said.

"People want spaces that support how they actually live, whether that's working from home, staying active, or spending time with family and friends.

"That's where amenity becomes critical. It's not just about what's included, but how those spaces are designed to be used every day."

[smartcode_project:default project_id=150017 project_image_fid=374052]

The breadth of amenity has already attracted buyers across multiple demographics. Younger first home buyers have been drawn to Soleira's one-bedroom apartments, a product rarely delivered in Palm Beach, while families have responded to practical inclusions such as the shallow children's pool adjoining the main lap pool and the extensive communal recreation areas.

Instead of a single rooftop, Soleira delivers two distinct lifestyle zones.

[smartcode_project:default project_id=150017 project_image_fid=372547]

The southern rooftop has been dedicated to wellness, featuring a gym, yoga and Pilates studio, work-from-home facilities, a wellness centre, spa, and hot and cold plunge pools.

The northern rooftop focuses on recreation and entertaining, incorporating a heated resort-style pool, private dining rooms, pizza ovens, barbecues, a golf simulator, children's recreation areas, and what is expected to be the Gold Coast's first rooftop basketball court, which will also double as a squash court.

[smartcode_project:default project_id=150017 project_image_fid=374054]

Beyond the rooftops, Soleira will introduce 1,500 sqm of curated retail beneath the towers, creating one of Palm Beach's first genuinely mixed-use lifestyle precincts where cafés, restaurants and convenience retail become part of residents' everyday lives.

Sherpa has also retained management rights across the development, allowing it to oversee the long-term operation of the building through a 24-hour concierge model. The developer is also exploring additional revenue streams within the precinct aimed at helping offset ongoing body corporate costs for residents.

[smartcode_project:default project_id=150017 project_image_fid=370962]

While Soleira is the largest project Sherpa has delivered, the rooftop-first philosophy has been evolving for several years.

It began with <a href="https://www.apartments.com.au/new-apartments/amargo-6-12-sixth-avenue-palm-beach-qld-4221">Flourish Amargo</a>, the first project released under the Flourish brand. Rather than competing at the ultra-luxury end of the market with oversized half-floor and full-floor residences, Sherpa focused on creating lifestyle-driven apartments supported by resort-style shared spaces.

Amargo introduced more than 800 sqm of rooftop amenity, combining wellness facilities, heated pools, entertaining areas, cabanas, pizza ovens and private dining spaces into what was designed as an extension of residents' homes rather than a facility used only occasionally.

[smartcode_project:default project_id=146527 project_image_fid=366550]

That approach continued with Flourish Oasis, where the same amenity-led philosophy was refined into a more boutique development. Strong demand from Sherpa's growing VIP database saw much of the project sold before it reached the broader market, reinforcing buyer appetite for apartment communities centred around shared lifestyle experiences.

Flourish Amargo is slated for completion mid-way-through next year, with Oasis to be delivered by late 2027. Flourish Soleira is expected to complete in 2030.

[smartcode_project_cta:default project_id=150017]

Sherpa takes amenity to the sky as Flourish Soleira captures booming Palm Beach demand

As apartment living continues to evolve across Sydney's growth corridors, the quality and distribution of shared spaces is increasingly shaping how residents experience home. Rather than functioning as add-ons, amenities are being embedded into the daily rhythm of a building, supporting everything from quiet retreat to social interaction, often within a single vertical community.

At <a href="https://www.apartments.com.au/new-apartments/aeris-melrose-park-nursery-street-melrose-park-nsw-2114">Aeris</a> in Melrose Park, this approach is resolved through a layered amenity offering that unfolds from ground level through to its upper podium. Developed by <a href="https://www.apartments.com.au/developers/sekisui-house-australia">Sekisui House Australia</a> in partnership with Hankyu Hanshin Properties, the project introduces 468 apartments across two towers and a mid-rise building, positioned at the highest point of the broader masterplan.

[smartcode_project:default project_id=426 project_image_fid=359199]

The amenity experience begins at street level, where two courtyards sit within a landscaped setting that connects residents to the wider network of parks and green spaces. These green spaces are not isolated pockets but part of a wider pedestrian network that links Aeris to the surrounding <a href="https://www.apartments.com.au/developments/melrose-park-nsw-2114">Melrose Park</a> precinct, including Central Park, future schools, and the Town Centre opening in July 2026. The result is a transition that moves from public to private without abrupt boundaries, allowing residents to pass through shaded, tree-lined environments before reaching the building itself.

Moving upward, the focus shifts to the level five podium, where the primary communal facilities are concentrated. This space brings together a 16-metre swimming pool, outdoor seating areas, and a communal BBQ zone arranged to take advantage of elevated outlooks. Seating is positioned beneath pergolas, creating pockets of shade that extend the usability of the space throughout the day. The pool edge aligns with views toward the wider district, reinforcing the sense of elevation that defines the project’s positioning.

In the adjacent building, this is complemented by quieter, more contemplative spaces, including an outdoor cinema set within the same level. Positioned to operate primarily in the evening, it introduces a different tempo to the shared environment, shifting from daytime activity to after-hours use without requiring separate zones.

[smartcode_project:default project_id=426 project_image_fid=360299]

The podium also accommodates an intimate private resident gym. Located on the lower levels, it gives residents convenient access to fitness facilities without leaving the building.

Above, the elevated podium sky deck extends the amenity offering, providing additional open-air spaces with elevated outlooks across the surrounding landscape. While more restrained in program, this upper level reinforces the project’s vertical progression, from ground-level greenery to elevated outlook, allowing residents to move between distinct spatial conditions within a single address.

This distribution of amenities reflects a deliberate response to how residents use space across the day. Sekisui House Australia Sales and Marketing Director Peter Kalaf points to the role these shared areas play in shaping buyer demand. Aeris has been conceived as more than a collection of apartments, with the podium pool, gym and outdoor cinema forming part of a broader lifestyle offering that extends the home beyond each individual residence.

[smartcode_project:default project_id=426 project_image_fid=360300]

What distinguishes Aeris is not the inclusion of these elements individually, but how they are arranged in relation to one another. Active, social, and passive spaces are layered vertically rather than separated, allowing residents to choose between them without leaving the building or moving far from their apartment. This proximity supports both routine use, such as a morning swim or evening workout, and more occasional gatherings, whether around the BBQ area or within the cinema setting.

The amenity design also sits within a broader framework of connectivity across Melrose Park. The Melrose Park Town Centre, anchored by Coles and Dan Murphys, features a mix of retail, dining, health and lifestyle offerings, bringing everyday convenience closer to residents. By the end of the year, more than five hectares of parks and open space, equivalent to around seven football fields of green space on residents' doorstep, will further enhance the precinct, allowing the internal facilities at Aeris to operate as an extension of the wider neighbourhood rather than a substitute for it.

Construction at Aeris continues to gather momentum, with ground floor slabs expected to be completed in late 2026 before the first sections of the buildings begin to rise above ground.

[smartcode_project_cta:default project_id=426]

Elevated amenity anchors daily life at Aeris, Melrose Park

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]

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

Inflation

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GUEST OBSERVER
Global: Brexit has had less impact on the global economy than many feared. Financial markets are generally either back to pre-referendum levels or even stronger, and the direct economic fall-out looks like being largely restricted to a UK recession and modest spill-over to European trading partners.
Having dodged yet another bullet, the global economic upturn continues along at its sub-trend pace with only a few inconclusive signs that things are finally about to get better. We have marked down our US forecasts in the wake of disappointing second quarter data but East Asia is doing slightly better and the outcome is 2016 forecast global growth stays at 2.8 percent.
Inflation generally remains sub-target, central banks have used up much of their policy ammunition (although very unorthodox measures like “helicopter money” remain) and the structural factors that have weighed on global growth remain. China and India are driving more than half of global growth, the former by returning to time-honoured pump priming measures that pile up debt and the latter by printing statistics that many view as erring on the side of optimism in measuring GDP.
Global financial markets have digested the latest shock – the UK’s “Brexit” vote – quite well. Equity markets fell in the big advanced economies initially in the wake of the Brexit vote, but are back above their pre-referendum level.
 
Market volatility spiked as the unexpected poll outcome became clear but it soon subsided and is now not only below pre-referendum levels but is very low by historical standards. Interest rates are also exceptionally low with negative Government long bond rates and either very low or negative central bank policy rates in several key economies. Corporate bond spreads have fallen below pre-Brexit levels in the US and UK.
 
Bank lending surveys do not point to much impact of Brexit outside the UK either. Central bank policy has tended to disappoint those looking for quick action to either address deflation and/or slow growth risks (in the Euro, Japan and UK) or move the US further along on its much anticipated rate tightening cycle.
 
The Bank of Japan’s monetary easing measures disappointed the market, the ECB preferred to wait and see how its last raft of asset buying fared. The Bank of England has cut rates but will need to move again and the Fed will not raise rates until December.
 
Global growth remains sub-trend and moderate, but there are a few brighter signs. Although the monthly data bounces around, the pace of growth in the CPB’s measure of world industrial output has picked up slightly, following a soft March quarter. Production in the Asian emerging market economies – who buy the bulk of Australia’s exports - has been looking less subdued. Export volumes from the emerging markets have also been climbing out of a particularly soft patch whereas exports from advanced economies remain very weak.
 
We track industrial growth across a large sample of big economies and some data is available up to June. This data confirms that industrial growth, while still subdued by historical standards, has been gradually rising since the start of the year. Industrial output growth in the 3 months to January was only 0.6 percent yoy, by June it was up to 11⁄4 percent yoy – far from strong and well below its long-run annual average of around 3%, but better than it was.
 
The monthly business surveys are also consistent with ongoing moderate growth. Purchasing manager surveys for the big advanced economies show July readings not far off those in June, despite a big post-Brexit hit to UK business sentiment. Activity was better maintained in services than in manufacturing in the big advanced economies and the former is by far the biggest sector in these economies.
 
Turning to the big emerging markets, latest Chinese business reports are consistent with unchanged growth but they point to slightly more optimism for the future. Indian surveys remain little changed and well below what would be expected in such a fast growing economy. Taken overall, the surveys suggest global growth staying around its moderate pace.
 
Growth in the big S. Hemisphere commodity exporters has been hard hit by the weak primary product prices that stem from subdued global growth and supply growth. Recent $US weakness has helped lift some commodity markets and their $US export receipts are stabilising.
 
Our view of the world economy has not changed. There have been downward revisions to US data as well weaker than expected second quarter US economic numbers, reflecting the way that US firms met demand by running down stocks. We expect this to be only a temporary disappointment with growth running around 2% through the next couple of years.
 
Nevertheless, the low second quarter reading still contributes to a cut in our 2016 US growth forecast from 1.8 percent to 1.5 percent. We have also cut our Euro-zone numbers for 2017 as the predicted UK recession hits demand for their exports and rising populist sentiment delays investment plans. East Asian emerging market growth is looking a little stronger.
 
 
Australia: Australian economic growth is expected to remain resilient at 2.9 percent in 2016 and 2017, despite significant variation across industries and states. However the risks to the outlook going into 2018 are becoming increasingly apparent, as LNG exports flatten off at a high level and the dwelling construction cycle turns down.
 
Against these headwinds, the economy may require additional policy action to support growth, especially if the RBA hopes to see inflation return to within its 2-3 percent target band. We now expect the RBA will see the need to provide further support through two more 25bp cuts in May and August 2017 (to a new low of 1 percent), which should be enough to stabilise the unemployment rate at just over 5 1⁄2 percent and prevent economic growth from dropping below our forecast of 2.6 percent in 2018.
 
Monetary policy deliberations may then turn to the possible use of non-conventional policy measures if the outlook deteriorates further. Additionally, persistent weakness in CPI inflation could potentially trigger a rate cut even sooner than expected.
 
Business sentiment has shown great resilience to external shocks in the July NAB Monthly Business Survey, with firms choosing to remain focussed on the positive trends within their own business.
 
The business confidence index remained positive, despite easing slightly. Business conditions dropped back as well, but are still at an elevated level that is well above the long run average. While trading conditions and profitability have been the main driver of elevated business conditions, both of these contributed to the deterioration during the month. Encouragingly, the employment component managed to hold onto the gains seen in June, suggesting ongoing employment growth. Inflation measures in the Survey generally stayed soft, although there was a surprise spike in retail prices. Leading indicators were mixed, with forward orders a little softer but spare capacity was down.
 
Employment growth for June was moderate (7.9k), although there was a notable detraction from sample rotation effects. The moderate increase and a rise in the participation rate saw the unemployment rate edge up modestly to 5.8 percent.
 
Additionally, average hours worked continued to trend lower, pointing to a build-up of spare capacity. By state, labour market conditions remain mixed, with further evidence that mining states are lagging further behind. Forward indicators are generally quite positive. The employment index from the June NAB Survey was consistent with employment gains (of 18k per month) in the next six months. In light of our forecasts for economic growth, and subdued wages growth, we expect the unemployment rate to stabilise at around 5.6 percent from end-17. 
 
Overall, household spending has been holding up relatively well, despite the recent slowdown in employment growth and low wages growth. That said, higher frequency data such as retail sales, our monthly NAB Online Retail Index and NAB Business Survey have lost some momentum. While soft wages growth will remain a constraint, we continue to expect reasonably resilient household consumption growth in coming quarters, supported by the recent RBA rate cut (albeit only partially passed on by banks) and resilient house prices, especially in Sydney and Melbourne.
 
National dwelling prices (hedonic) continued their rise in July, although recent strength reflects adjustments made for the quality of houses hitting the market. Prices may continue to see support in the near term from the recent RBA rate cut and solid population growth in NSW and Victoria. However, we still believe that the major eastern housing markets will see relatively flat / modest growth in prices into 2017 as affordability, slowing rents and prudential constraints, as well as the growing supply of housing (especially apartments) begin to bite.
 
Lower interest rates, less spare capacity and positive business confidence should all lend support to non-mining business investment, which was relatively lacklustre in Q1 2016. Indeed, the NAB Survey is showing good rates of non-mining capex activity and future capex plans. Also, growth in business credit has steadily improved in the last two years, although it appears to have lost momentum in the past two months.
 
Other indicators suggest a more mixed outlook for business investment. The value of non-residential building approvals has not been very responsive to interest rate cuts, although the trend has started to improve modestly. We remain optimistic that non-mining investment will improve, albeit gradually. On dwelling investment, the pipeline in apartment construction remains substantial, and will fuel strong rates of dwelling investment well into 2017, but will drag on activity from 2018.
 
New shipments of LNG and fewer supply disruptions should boost export figures from July onwards. However, depressed LNG prices threaten the export outlook. Other commodity prices have risen over the month to be well above the low levels at the turn of the year. Meanwhile, the lower AUD and rising wealth in Asia continue to support short term visitor arrivals and international student enrolments.
With inflation forecasts still very low and the RBA showing its hand as a committed inflation targeter, it is seemingly less worried reducing its valuable monetary policy ammunition than we thought. We now expect two cuts of 25bps in May and August 2017 – although persistent weakness in CPI inflation could trigger a rate cut sooner. By that time, the RBA will be looking towards 2018, for which our forecasts also suggest some loss of momentum in economic activity (although the RBA’s forecasts are more optimistic for now).
Our forecast for more aggressive easing next year than priced in the market provides a counter to other upside AUD risks. This leaves us comfortable maintaining our existing AUD forecasts, with AUD/USD falling to just below 70 cents in H2 2017 before gradually recovering.
Alan Oster is group chief economist, National Australia Bank, and can be contacted <a href="https://business.nab.com.au/author/alan-oster/" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

RBA showing its hand as a committed inflation targeter: NAB's Alan Oster

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GUEST OBSERVER
The Consumer Price Index – the main measure of inflation in Australia – rose by 0.4 percent in the June quarter, in line with expectations.
In seasonally adjusted terms the CPI rose by 0.6 percent. The annual rate of inflation fell from 1.3 percent to 1.0 percent – equalling the low set in June 1999. So inflation stands at a 17-year low. 
The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean rose by 0.5 percent in the June quarter (1.7 percent annual); the weighted median rose by 0.4 percent (1.3 percent annual) and the CPI less volatile items rose by 0.3 percent (1.6 percent annual). Overall, underlying inflation rose by 0.4 percent in the quarter and by 1.53 percent over the year – a record low.
Petrol prices rose by 5.9 percent in the quarter with medical and hospital services up by 4.2 percent, tobacco up by 2.1 percent and new dwelling purchase up 0.9 percent. The CPI was dragged lower by a 3.7 percent fall in domestic holiday costs, a 1.3 percent fall in car prices and 1.5 percent fall in telecom equipment and services.
Education fees rose 3.3 percent over the year – the slowest growth on record. A raft of goods fell at a record annual rate including breakfast cereals, wine, snacks &amp; confectionary and communication. 
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What does it all mean?
 Price pressures are contained. Clearly this is not a new development and certainly not one confined to Australia. Consumers can buy goods anywhere and anytime with internet purchases transforming businesses across the globe. Competition is keeping downward pressure on prices and margins and causing businesses to look first at cutting costs before opting to lift prices. And disruption is adding to the competitive forces – developments like Airbnb and Uber are challenging mainstream industries and businesses.
Inflation is stubbornly below the Reserve Bank’s 2-3 percent target band. And importantly it is unlikely the Bank will look to revise the target any time soon. The only way that the Reserve Bank can seek to lift the inflation rate to the target band is by running the economy at a faster rate and that means cutting interest rates. So a rate cut will be on the agenda at the Reserve Bank Board meeting next Tuesday.
Will a rate cut actually boost growth? It is far from certain, but the Reserve Bank has to try. But the Reserve Bank won’t continue to cut rates if it’s clear that interest rates at super-low levels have become ineffective in boosting demand.
Before today’s data the Reserve Bank had assumed an annual headline CPI result near 1 percent in the June quarter with the underlying rate at 1.5 percent. Those forecasts have been realised. But the Reserve Bank had tipped inflation to stay locked between 1.5-2.5 percent over the next two years. So even before the latest data the Reserve Bank held open the possibility of a rate cut with inflation expected to remain at or below the bottom end of its 2-3 percent target range.
 Low inflation isn’t confined to certain parts of the economy – it is very much an economy-wide phenomenon. In fact the core measure of market-determined services (excludes volatile items) actually fell by 0.2 percent in the quarter. It’s not just goods but also services that are getting cheaper. Consumers are kings and queens in the current environment.
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What do the figures show?
Consumer Price Index
The All Groups Consumer Price Index (CPI) rose by 0.4 percent in the June quarter, broadly in line with expectations. In seasonally adjusted terms the CPI rose by 0.6 percent. The annual rate of inflation fell from 1.3 percent to 1.0 percent – equalling the low set in June 1999. So inflation stands at a 17-year low.
Underlying measures of inflation were generally in line with forecasts in the June quarter. The trimmed mean rose by 0.5 percent in the June quarter (1.7 percent annual); the weighted median rose by 0.4 percent (1.3 percent annual) and the CPI less volatile items rose by 0.3 percent (1.6 percent annual). Overall, underlying inflation rose by 0.4 percent in the quarter and by 1.53 percent over the year – a record low.
The Bureau of Statistics noted: “The most significant price rises this quarter are medical and hospital services (+4.2 percent), automotive fuel (+5.9 percent), tobacco (+2.1 percent) and new dwelling purchase by owner- occupiers (+0.9 percent). The most significant offsetting price falls this quarter are domestic holiday travel and accommodation (-3.7 percent), motor vehicles (-1.3 percent) and telecommunication equipment and services (- 1.5 percent).”
Prices of tradables rose by 0.6 percent in the June quarter with higher petrol prices offsetting low car prices. The tradables component of consumer prices was unchanged in the year to June.
Prices of non-tradables rose by 0.4 percent in the June quarter. Price increases were recorded for new dwelling purchase and hospital and medical services. The most significant offsetting fall was for domestic holiday travel and accommodation. Non-tradables prices rose by 1.6 percent in the year to June. Tradable goods are those items whose prices are largely determined on the world market. Non-tradable prices are more affected by domestic economic conditions.
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Why is the data important? 
The Consumer Price Index (CPI) is regarded as Australia’s premier measure of inflation. The CPI is published quarterly and measures price changes for a ‘basket’ of goods and services that dominate expenditure of metropolitan households. The “All Groups” index is the main focus, but other inflation measures are also published such as so-called ‘underlying’ measures. These include measures that abstract from price changes in volatile price items such as fresh food and petrol. The Reserve Bank aims to keep the headline inflation rate between 2-3 percent over an economic cycle. If inflation is high and expected to rise, the Reserve Bank may elect to raise interest rates in order to constrain price pressures. Conversely, if inflation is low and expected to remain low, the Reserve Bank may elect to cut interest rates if it believes the growth pace of the economy is in need of strengthening.
What are the implications?
CommSec expects the Reserve Bank to cut the cash rate next week by 25 basis points or a quarter of a percent to 1.75 percent.
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At the Reserve Bank website, four measures of inflation are represented – the headline rate of inflation and three underlying measures. All four are important. The headline inflation rate is at 17-year lows. The average underlying rate is 1.53 percent – the lowest result in data extending back to 1983. It is clear that little stands in the way of the Reserve Bank cutting rates again.</div>
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<div class="column">There are no inflationary pressures. Businesses will need to continue to look at cost and productivity savings to keep prices low or drive prices even lower. </div>
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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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Little in the way of the Reserve Bank cutting rates again: CommSec's Craig James

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According to the Australian Bureau of Statistics, consumer prices rose by 0.4 percent from the prior quarter and 1 percent over the year to June 30.
The numbers were largely in line with economist projections.
Today’s inflation figures were highlighted by the RBA as key to any decision to cut the rates again.
The yearly rise of 1 percent is the lowest since the 1999 June quarter of 1999 so leaves the door open to a further rate cut this year.
With underlying inflation at 1.5 percent year on year, which is what the RBA especially watches, and still below the target 2 percent to 3 percent, many forecasters still see the case for another rate cut.
The A$ actually jumped on the latest ABS release, but then came back a tad in late morning trade.
Opinions remained divided but the general consensus was echoed by Stephen Koukoulas ‏tweeting: "There's the rate cut locked in for next week."
CommSec also suggested the chances of an RBA rate cut next week have increased after the release of softer than expected 2Q inflation.
CommSec's Craig James then issued an advisory that noted inflation is stubbornly below the Reserve Bank’s 2-3 per cent target band. 
"And importantly it is unlikely the Bank will look to revise the target any time soon. 
"The only way that the Reserve Bank can seek to lift the inflation rate to the target band is by running the economy at a faster rate and that means cutting interest rates. 
"So a rate cut will be on the agenda at the Reserve Bank Board meeting next Tuesday.
"Will a rate cut actually boost growth? It is far from certain, but the Reserve Bank has to try. 
"But the Reserve Bank won’t continue to cut rates if it’s clear that interest rates at super-low levels have become ineffective in boosting demand."
THE ALL GROUPS CPI
<ul>
<li type="square">rose 0.4 percent this quarter, compared with a fall of 0.2 percent in the March quarter 2016. </li>
<li type="square">rose 1.0 percent over the twelve months to the June quarter 2016, compared with a rise of 1.3 percent over the twelve months to the March quarter 2016.</li>
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 OVERVIEW OF CPI MOVEMENTS
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<li type="square">The most significant price rises this quarter are medical and hospital services (+4.2 percent), automotive fuel (+5.9 percent), tobacco (+2.1 percent) and new dwelling purchase by owner-occupiers (+0.9 percent). </li>
<li type="square">The most significant offsetting price falls this quarter are domestic holiday travel and accommodation (-3.7 percent), motor vehicles (-1.3 percent) and telecommunication equipment and services (-1.5 percent).</li>
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Inflation figure leaves door open for August rate cut by RBA

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<div class="column">Key megatrends relevant for investors are: slower growth in household debt; the backlash against economic rationalism &amp; rise of populism; geopolitical tensions; aging and slowing populations; low commodity prices; technological innovation &amp; automation; the Asian ascendancy &amp; China’s growing middle class; rising environmental awareness; and the energy revolution</div>
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<div class="column">Most of these are constraining growth and hence investor returns. However, technological innovation remains positive for profits and some of these point to inflation bottoming. </div>
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Introduction 
Recent developments – including the rise of populism, developments in the South China Sea and around commodity prices along with relentless technological innovation – have relevance for longer term trends likely to affect investors. So this note updates our analysis on longer term themes that will likely impact investment markets over the medium term, say the next 5-10 years. Being aware of such megatrends is critical given the short term noise that surrounds markets. 
The super cycle slowdown in household debt 
Household debt to income ratios surged from the late 1980s fuelled by low starting point debt levels, financial de-regulation and the shift from high to low interest rates. But it’s likely run its course as the GFC and constrained economic growth have left consumers wary of adding to already high debt levels and banks’ lending standards are now tougher. This has seen growth in debt slow &amp; households run higher savings rates. 
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Implications – slower growth in household debt likely means slower growth in consumer spending, lower interest rates and central banks having to ease more to achieve a desired stimulus. Slower credit growth is also a drag for banks.
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The backlash against economic rationalism 
Its arguable that support for economic rationalist policies (deregulation, privatisation and globalisation) peaked over a decade ago. The corporate scandals that followed the tech wreck and the financial scandals that came with the GFC have seen an increase in regulation, the Doha trade round has been stalled for years and now the combination of slow post GFC growth and rising inequality (see the next chart) in the absence of the ability to take on more debt to maintain consumption growth are leading to growing populist angst. 
This is evident in the success of Donald Trump, the Brexit vote and the recent Australian Federal election. Of course this is just the way the secular political pendulum swings - from favouring free markets in the 1920s to regulation and big government into the 1970s, back to free markets in the 1980s and 1990s and now back the other way with each swing ultimately sowing the seeds for the next. But the risk is that the shift away from economic rationalist policies in favour of more populist policies will lead to slower productivity growth and ultimately rising inflation as the supply side of economies are damaged &amp; easy fiscal policy is adopted. 
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Implications – populist polices could slow productivity and set the scene for the next upswing in inflation. 
Geopolitical tensions 
The end of the cold war and the stabilising influence of the US as the dominant global power in its aftermath helped drive globalisation and the peace dividend post-1990. Now the relative decline of the US, the rise of China, Russia’s attempt to revisit its Soviet past and efforts by other countries to fill the gap left by the US in various parts of the world are creating geopolitical tensions – what some have called a multi-polar world. This is evident in increasing tension in the Middle East between (Sunni) Saudi Arabia and (Shia) Iran; Russia’s intervention in Ukraine; and tensions in the South China Sea (which have recently been increased by a UN sponsored international court ruling in favour of The Philippines regarding island disputes) and between China and Japan.
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Implications –geopolitical tensions have the potential to disrupt investment markets at times. 
Aging and slowing populations 
The demographics of aging and slowing populations have long been talked about but their impact is now upon us. We are living longer and healthier lives (eg, average life expectancy in Australia is already around 83 years and is projected to rise to 89 years by 2050) but falling fertility rates are leading to lower population growth. The impact is more significant in some countries, which are seeing their populations fall (eg, Japan, Italy and even China) than others (eg, Australia, where immigration and higher fertility is providing an offset) and others still where population growth remains rapid (eg, India, Africa and the Middle East). 
Implications – at the macro level this means: slowing labour force growth which weighs on potential economic growth; increasing pressure on government budgets from health and pension spending and a declining proportion of workers relative to retirees; a "war for certain types of talent"; and pressure to work longer. At the industry level it will support growth in industries like healthcare and leisure. At the investment level it will likely see an ongoing focus on strategies generating income (yield) while at the same time providing for "more stable" growth to cover longevity. 
The commodity super cycle may be close to bottom 
Since around 2008 (for energy) and 2011 (for metals) the commodity super cycle has been in decline as the supply of commodities rose in response to last decade’s commodity price boom combined with somewhat slower growth in China. However, after 50 to 80% peak to trough price declines and with supply starting to adjust for some commodities (eg oil) it’s quite likely that we have seen the worst (in the absence of a 1930s style recession). This doesn’t mean the next super cycle commodity upswing is near – rather a long period of base building is likely as we saw in the 1980s and 90s. 
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Implications – Low commodity prices will act as a constraint on inflation and interest rates but the likelihood that we have seen the worst may also mean that the deflationary threat will start to recede. In other words it adds to the case for a bottom in global inflation. A range bound environment less clearly favours commodity user countries over producers. 
Technological innovation &amp; automation 
The impact of technological innovation is continuing to escalate as everything gets connected to the internet. The work environment is being revolutionised enabling companies to increasingly locate parts of their operation to wherever costs are lowest and increasingly to automate and cut costs via automation, nanotechnology, 3D printing, etc. The intensified focus on labour saving is likely good for productivity and profit margins but ambiguous for consumer spending as it may constrain wages and worsen inequality and could ultimately hamper growth in emerging countries. There is also the ongoing debate that with so many “free” apps and productivity enhancements, growth in activity (GDP and hence productivity) is being underestimated/inflation overestimated and consumers are doing a lot better than weak wages growth implies. So fears around inequality and stagnant real incomes may be exaggerated. Time will tell.
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Implications – technological innovation remains a reason for inflation to stay low and profit margins to remain high. But also a potential positive for growth. 
Asian ascendancy &amp; China’s growing middle class 
Low levels of urbanisation, income and industrialisation continue to mean that the emerging world offers far more growth potential than the developed world. While big parts of the emerging world have dropped the ball (South America and Russia particularly), the reform and growth story remains mostly alive in Asia – from China to India. Both China and India are seeing a surging middle class, with China’s growing from just 5 million people 15 years ago to now 225 million. This means rising demand for services like healthcare, leisure &amp; tourism. 
Implications – favour non-Japan Asian shares (allowing of course for risk). Tourism and services should benefit particularly from the rising middle class in China and India. 
The environment and social values 
Concern about the environment is continuing to grow and higher social standards are being demanded of governments and corporates. This reflects a range of developments including increasing evidence of the impact of human activity on the environment, younger generations demanding higher standards and social media that can destroy reputations in a flash. 
Implications – this will favour companies that adhere to high environmental, social and governance standards. 
The energy revolution 
Renewables share of power production will only grow as alternatives like solar continue to collapse in cost and solar energy storage becomes mainstream. Likewise advances in battery technology are seeing a massive expansion in the use of electric cars which will feed on itself. 
Implications – this has huge negative implications for oil and coal and along with the impact of shale oil production will keep a ceiling on energy prices. 
Implications 
At a general level there are several implications for investors 
Firstly – several of these trends will help keep inflation low, eg, slower growth in household debt, low commodity prices automation &amp; the energy revolution. By the same token if commodity prices have seen the worst and government policy shifts towards stimulus we may have seen the worst of deflationary and disinflationary pressures.
Secondly – several are also consistent with constrained economic growth, notably aging and slowing populations, slower growth in debt, the backlash against free markets and geopolitical tensions. This is not universal though as increasing automation is positive for profits. 
This is all still consistent with ongoing relatively low interest rates (albeit we are likely around the bottom) and relatively constrained medium term investment returns. 
Several sectors stand out as winners including health care and leisure but producers of energy from fossil fuels are potential losers. 
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<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds. 
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Megatrends impacting investment markets: Shane Oliver

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Growth has been strong, but inflation is weak. This is an unusual combination.
Typically, strong growth sees a pick-up in domestic demand, which creates jobs and drives wages and inflation up.
Not this time.
Part of the reason has been that global inflation is low, but this is not the full story.
Australia's low inflation also reflects an unusual local cycle. The end of the mining boom has been long and drawn out, running for four years, so far.
Faced with falling commodity prices, which have weighed on national incomes, Australia's economy has adjusted with slower wages growth, down from 4% to 2% y-o-y. This has, in turn, delivered lower inflation.
In this way, we see low inflation as an element of Australia's rebalancing act, as growth shifts from being driven by the mining sector towards the housing and services sector.
Slower wages growth has helped to improve Australia's competitiveness, supporting the shift in growth.
The shift itself has also lowered wages growth, as higher paid mining jobs are being replaced by lower paid services jobs.
Low wages growth and inflation have also allowed the RBA to cut its cash rate, supporting the rebalancing of growth, and pushing the AUD lower, which has helped to improve local competitiveness.
Lower wages growth and inflation have helped to allow the economy to more smoothly absorb the impact of lower commodity prices.
We see inflation as likely to pick up when the rebalancing act is complete, which we forecast to be around mid-2017.
In our view, commodity prices have already passed the trough and mining investment should start to stabilise around mid-2017.
As a result, we see wages growth and underlying inflation stabilising soon and edging higher in 2017. It is for this reason that we do not expect the Australian cash rate to fall much further.
Our central case is for a 25bp cut in August, following the second quarter underlying CPI print (on 27 July) and for the RBA to hold its cash rate steady at 1.50% over subsequent quarters.
However, this view is conditioned on the Q2 underlying inflation print being below 0.5% q-o-q. If it is higher, the RBA may not cut.
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The good kind of inflation: HSBC's Paul Bloxham

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GEUST OBSERVER
Keeping inflation on target is proving to be a challenge for many central banks. Most of the major central banks have had inflation well below their targets in recent years.
The RBA may now be having a similar problem. Headline CPI inflation has now been below the RBA’s 2-3% target band for six quarters, which is the longest period of sub-target inflation since 1999. More worrisome, the underlying measures of inflation, which abstract from temporary factors, are also well below the target band. The RBA’s preferred measures of underlying inflation were around 1.5% y-o-y in Q1.
Given the low global inflation story, it is tempting to suggest that Australia is now just succumbing to forces that are beyond local control. This possibility cannot be completed dismissed. However, at this stage, the evidence suggests otherwise. Firstly, the significant slowdown in inflation has been largely in non-tradable (domestically produced) inflation. This includes education and housing rents, which had much weaker prices growth in Q1. The factors driving this weakness are local rather than global. Tradable inflation, which is largely imported goods and services, was broadly in line with the level implied by the AUD and import prices in Q1.
Secondly, although local growth has been solid, it has still been below trend over the past three years. Below-trend growth has meant that spare capacity has built up, which is weighing on domestic inflation. For example, although the unemployment rate has fallen (it was 5.7% in April), it is still above the full employment level (5- 5.25%). As a result, wages growth is at its slowest rate in at least two decades. 
Finally, the rebalancing of growth from mining to the services sectors is proving to be disinflationary. This partly reflects that wages tend to be lower in the services sectors than in mining-related areas. 
Our models suggest that underlying inflation will remain below the RBA’s target band over the next year, but then lift back into the band as the labour market tightens and wages growth gradually rises. This is a stronger profile than the RBA is forecasting for underlying inflation, with the RBA forecasting a particularly weak inflation outlook.
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Domestic price pressures are weak, despite solid GDP growth
Given low global inflation, it is tempting to suggest that Australia is now just succumbing to the global story. Of course, to some degree, this is true. Indeed, the significant fall in global commodity prices has been a major driver of the dynamics in Australia’s economy in recent years and, to this extent, the global story is clearly having a big influence.
However, at a proximate level, it was not the low global inflation story that drove the significant recent downside surprise in Q1 CPI inflation, and thus triggered the recent RBA cut. Tradable inflation (mostly imported goods) was roughly in line with what was expected, given movements in the AUD and in imported prices. The big surprise in the Q1 CPI numbers was the lower-than expected domestic price pressures. Non-tradable (domestic) inflation fell to its lowest rate in at least 17 years, running at 1.7% y-o-y in Q1 (Chart 1). The broad-based nature of the weakness in price pressures saw the RBA’s preferred measures of underlying inflation – the trimmed mean and weighted median – fall to an average rate of 1.55% y-o-y (Chart 2).
Weaker domestic inflation has arrived, despite solid GDP growth (Chart 3). Importantly, however, it is worth keeping in mind that GDP has been below trend for the past three years, on average, which has seen a build-up in spare capacity, with the unemployment rate still well above the full employment level (Chart 4). There has been growth, but not quite enough of it.
The solid GDP growth numbers have also been heavily driven by exports of commodities and services. Domestic demand has been modest, even after stripping out the decline in mining investment (Chart 5). Weaker domestic demand has weighed on domestic wages and prices.
The rebalancing of growth from mining investment to the housing and services sectors has also put downward pressure on wages growth and thereby on inflation. Jobs in the mining and associated industries are being replaced by generally lower paid work in the services sectors, which has contributed to weaker wage outcomes. The latest numbers show that wages growth has weakened to its slowest pace in at least two decades (Chart 6). For more on this composition effect see Downunder Digest: Looking for signs of rising wages, 15 April 2016.
At a component level there are also clear signs that much of the weakness in inflation has been due to domestic factors. Two key components of CPI that surprised to the downside over the past year have been housing and education (Chart 7). On housing, the weakness has reflected sluggish growth in rents.
Part of the story is that rents have fallen in Perth, where the end of the mining boom has weighed on demand, while there has also been a significant boost to supply of rental properties, particularly apartments (Chart 8). Growth in rents is likely to have been held back in other capitals by a ramp-up in investor housing putting more rental properties onto the market.
Education has been weaker due to a surprisingly sharp fall in tertiary education fees.
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What the inflation models are saying
To take a more formal approach to understanding the recent inflation dynamics we estimate two workhorse inflation models – a mark-up model and an expectations-augmented Phillips curve model – both based on the RBA’s own approach to modelling inflation. The Phillips curve model that shows inflation as the result of past and present measures of spare capacity in the economy, proxied by the unemployment rate and output gap (reduced spare capacity leads to higher inflation). The mark-up model sees inflation driven by current and lagged unit labour costs and import prices (this assumes firms set prices as a mark-up over costs). For more on the models see: Downunder Digest: Australia’s low inflation outlook, 19 November 2015.
To start with, it is worth pointing out that these models were surprised significantly to the downside by the weakness of the Q1 CPI result (Chart 9). This could reflect a range of possibilities. It could be telling us that there was a statistical distortion in the Q1 CPI numbers that exaggerated the weakness (that is, the models are more right). On the other hand, it could be telling us that our model is mis-specified (the data are right). Interestingly, a look at the model residuals suggests that the forecasts ‘miss’ was not out of the ordinary (as Chart 10 shows, the model predicts a much smoother path for underlying inflation than is apparent in the actual numbers).
One thing is very clear: the models do not predict a repeat of the very low Q1 underlying inflation print, with underlying inflation expected to be around 0.4-0.5% q-o-q in Q2. Using our central forecasts as inputs to the models, underlying inflation is projected to run at around 0.4- 0.5% per quarter over the rest of 2016 and all of 2017. This would see the trimmed mean running at 1.6-1.7% y-o-y for the rest of 2016, and getting back to around 2.0% in mid-2017.
The RBA is now forecasting inflation to be low
Following the downside surprise to the Q1 CPI numbers the RBA significantly lowered its own forecasts for underlying inflation. The RBA has taken around 50bp out of its underlying inflation forecast over 2016 and around 25bp of the forecast in 2017 and into 2018 (Charts 11 and 12). The RBA now expects underlying inflation to be below the 2-3% target band until mid-2018. This is a significant change in the RBA’s view and seems to be a larger adjustment than just carrying forward the direct impact of the Q1 forecast miss. Our own models have a slightly stronger outlook for inflation, with underlying inflation getting back to 2% a year earlier than the RBA’s central forecast.
We see a part of the RBA’s approach as tactical. Firstly, the RBA will be hoping not to get further downside surprises to its current inflation forecast as this could undermine the credibility of the inflation-targeting regime. Secondly, the much lower inflation forecast helps to bolster the RBA’s easing bias, which in turn may help to put additional downward pressure on the AUD. A lower AUD is clearly desirable for supporting growth but also for lifting inflation.
<a href="/images/2016/05/18/Screen%20Shot%202016-05-20%20at%208.27.00%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/05/18/Screen%20Shot%202016-05-20%20at%208.27.00%20AM.png" alt="">
What this could mean for policy
If our view is the right one, stronger domestic growth, which drives a further improvement in the labour market, should lead to a pick-up in wages growth and inflation. In this story, the main driver of recent weaker-than-expected inflation has been an extended period of below-trend GDP growth and the effect of the transition from mining to services sector-led growth. In short, the recent disinflation can be largely explained as a cyclical phenomenon, rather than a structural one.
<a href="/images/2016/05/18/Screen%20Shot%202016-05-20%20at%208.28.18%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/05/18/Screen%20Shot%202016-05-20%20at%208.28.18%20AM.png" alt="">
If this is the case, the appropriate policy prescription is looser policy. As the RBA has a mandate to maintain price stability, it seems likely that the central bank will need to cut the cash rate further. If our models are correct though, domestic inflation is nearing its trough. As a result, we see the RBA cutting once more, to 1.50% in August, and holding steady at that level in subsequent quarters. Looser fiscal policy would also be helpful, albeit not expected.
There are, of course, risks around this outlook. The first is to growth itself. Weaker-thanexpected growth could continue to weigh on wages and inflation, forcing the RBA to cut further.
Another risk is that more of the recent weakness in wages and inflation is structural and perhaps a global phenomenon. This could reflect the impact of globalisation, technology or the flow on effect of a long period of weak growth in the developed world in recent years that has left considerable excess capacity in a range of economies.
<a href="/images/2016/05/18/Screen%20Shot%202016-05-20%20at%208.22.13%20AM.png" target="_blank"> Click to enlarge</a>
<img src="/images/2016/05/18/Screen%20Shot%202016-05-20%20at%208.22.13%20AM.png" alt="">
Paul Bloxham is chief economist (ANZ) for HSBC . Daniel Smith is economist. They can be contacted <a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">here</a>.
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Property 101: Explaining Australia’s low inflation with HSBC's Paul Bloxham

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GUEST OBSERVER
Not surprisingly, the focus of the minutes was around the Bank’s downgraded inflation forecasts.
The minutes highlight the Bank’s uncertainty over the inflation outlook, and its concerns about the second-round impact of lower inflation on wages growth.
Don’t read too much into the lack of an explicit easing bias in the minutes. This is normally the case in the press release and minutes following a rate cut. We continue to expect another cut at the August meeting.
INFLATION THE KEY           
With the sharp downgrade to the RBA’s inflation forecasts in the Statement on Monetary Policy (SoMP) the focus in today’s minutes was always going to be on the inflation discussion. The minutes highlight the heightened level of uncertainty around the Bank’s outlook for inflation. As the SoMP suggested, the Bank was clearly disconcerted by the broad-based nature of the weakness in non-tradables inflation.
Interestingly, the minutes highlight the potential for the weakness in inflation to become entrenched, noting that “if inflation was to be persistently lower than previously forecast, it was possible that, in time, this could be reflected in lower wage growth”.
While the minutes note that there is a possibility that labour costs could pick up sooner than expected, they also highlight that heightened job insecurity is likely to be a factor in the global weakness in wage growth. Given the experience of the US, where unemployment has fallen from 10% to 5%, and wage growth has picked up only marginally, it’s difficult to see this factor dissipating any time soon.
The comments on growth were consistent with those in the SoMP, with the RBA noting no material changes to their forecasts for either activity or unemployment, while again noting that the outlook for China “had continued to be a key issue”.
On housing, the minutes reiterated that “supervisory measures were strengthening lending standards and that the potential risks of lowering interest rates therefore were less than they had been a year earlier”. The Bank will be closely watching developments in the housing market; while auction clearance rates have been broadly unchanged at the national level since the rate cut, house prices have been rising solidly through April and May. Moreover, with the recent Financial Stability Review noting heightened competition for investor lending, the RBA and APRA are likely to be watching this closely. 
The RBA’s comments on the currency remained largely unchanged, noting again that “an appreciating exchange rate could complicate [the outlook]”.
OUTLOOK
While there was no explicit bias in the minutes, this is normal practice in the press release and minutes released immediately post a rate cut. In our view, this does not imply that the rate cut was of the ‘one-and-done’ variety. The extent of the downgrade to the inflation forecasts in the SoMP strongly suggest that further easing is likely. That said, the discussion around the possibility of waiting for further data suggests a lack of urgency and counts against the possibility of a back-to-back cut in June. 
We continue to expect further monetary policy easing given the soft inflation outlook, and look for another 25bp cut in the cash rate to 1.5% at the August meeting.
 
Felicity Emmett co-head of Australian economics, ANZ Research and can be contacted <a href="https://www.anz.com/corporate/research/" target="_blank">here</a>.
 
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RBA minutes highlight inflation worries: ANZ's Felicity Emmett

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GUEST OBSERVER
The weekly ANZ/Roy Morgan consumer confidence rating was unchanged at 113.9 in the week to May 8. Confidence is up 3 percent over the year and above the average of 112.1 since 2014.
Just one of the five components of the index rose in the latest week.
Chinese inflation: Chinese consumer prices fell by 0.2 percent in April to be up 2.3 percent on the year. (forecast 2.3 percent). Producer prices fell by 3.4 percent over the year (forecast -3.7 percent).
Click to enlarge
<img src="/images/2016/05/10/Screen%20Shot%202016-05-10%20at%204.16.00%20PM.png" alt="">
Food inflation: Over the year food prices are up 7.4 percent with non-food prices up just 1.1 percent.
The consumer confidence figures have implications for finance providers, retailers, and companies dependent on consumer and business spending. Chinese economic data is especially of importance to exporters and importers.
What does it all mean?
The latest consumer confidence reading is quiet timely, providing the first perspective off how households have responded not just to the Federal budget but also the Reserve Bank interest rate cut. And in that context, if the Reserve Bank had been hoping for an immediate boost to confidence following the rate cut policymakers would be sadly disappointed – particularly in light of most of the major banks passing on the full rate cut to mortgage holders. Confidence was essentially flat in the past week.
The Federal budget would not have had a major impact on confidence. However it may be that the slide in the Aussie dollar negated the interest rate cut from the perspective of Aussie households. Over the past week the Australian dollar has fallen by over US4 cents. Overall a lower Australian dollar is great news not just for export orientated businesses but also the broader economy. However Aussie households tend to view a lower Australian dollar as a negative, making overseas travel and overseas online purchases more expensive.
The Chinese inflation data highlights the issues facing central banks across the globe. Chinese consumer prices fell in April and are up just 2.3 percent over the year. Deflation seems to be a more prevalent threat to a number of international economies. No doubt the weakness in commodity prices is feeding through to the weaker inflation results. In addition a weaker growth profile for the global economy is keeping price pressures under check.
China is Australia’s largest trading partner by a large margin. And China is attempting to rebalance activity away from construction, manufacturing and mining to service sectors like retailing, financial services, hotels and food services. And that rebalancing will continue to come with mixed results. Chinese authorities have scope to ease policy further if they deem it necessary.
What do the figures show?
Consumer confidence
The weekly ANZ/Roy Morgan consumer confidence rating was unchanged in the past week at 113.9 in the week to May 8. Confidence is up 3 percent over the year and above the average of 112.1 since 2014. Just one of the five components of the index rose in the latest week:
The estimate of family finances compared with a year ago was down from +6 to +5;
The estimate of family finances over the next year was down from +27 to +26;
Economic conditions over the next 12 months was down from -2 to -3;
Economic conditions over the next 5 years was unchanged at  +7;
The measure of whether it was a good time to buy a major household item was up  from +32 points to +34 points.
Chinese inflation:
Consumer prices fell by 0.2 percent in April to be up 2.3 per cent on the year. The annual result in line with forecasts.
Non-food prices  rose by 0.1 percent in the month to be up 1.1 per cent over the year. Prices of consumer goods rose 2.5 percent over the year (March 2.5 percent) with services up 2 percent (March 1.9 percent).
Food prices  fell by 1.4 percent in April after sliding by 1.8 percent in March. Food prices are up 7.4 percent over the year, down from the 7.6 percent annual gain in March. Pork prices rose by 3.2 percent after falling by 1.3 percent in March. Pork prices are up 33.5 percent in the year to April, up from the 28.4 percent annual increase to March.
Consumer good categories (year to April): Food, tobacco and alcohol 5.9 percent; Clothing 1.5 percent; Rent, fuel &amp; utilities 1.4 percent; Household goods 0.5 per cent; Transport and communication -2.4 percent; Education, culture and recreation 1.2 percent ; Healthcare 3.2 percent; Other goods and services 1.7 percent.
Producer prices fell by 3.4 percent in the year to April, firmer than the 4.3 percent decline to March and ahead of the market forecasts centred on a 3.7 percent decline. It was the smallest rate of decline since January 2015.
What is the importance of the economic data?
China’s National Bureau of Statistics  releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th  of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
What are the implications for interest rates and investors?
From a household balance sheet perspective the outlook for retailers looks healthy. Lower petrol prices, firm confidence levels, solid home construction and healthy employment should all serve to boost spending levels. However the uncertainty over the timing of an early Federal election will weigh on activity over the short term.
The Reserve Bank will closely monitor developments in China and financial markets more generally.
Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>
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Rate cut fails to lift confidence, China deflation: CommSec's Savanth Sebastian

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<div>Whoa, there! It seems that inflation has disappeared into a puff of dust!</div>
<div> </div>
<div>Nothing like an outlying result to shake things up a bit, and today's Consumer Price Index (CPI) or inflation result for the March quarter was an absolute ripper!</div>
<div> </div>
<div>Headline inflation printed negative at -0.2 percent. </div>
<div> </div>
<div>This was miles below expectations and the second weakest reading in nearly two decades, taking the annual result all the way down to 1.3 percent (which is well below the target inflation range to 2 to 3 percent).</div>
<div> </div>
<div>The falls were broad based, with six out of the eleven CPI groups recording declines.</div>
<a href="/images/2016/04/28/A6.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/28/A6.jpg" alt="">
 
<div>More importantly, the "core" analytical series, which strips out outlying readings, notched an extraordinarily soft set of numbers to take the respective annual readings to a record low. </div>
<div> </div>
<div>I've diced the data up below to four decimal places, but all you really need to know is that the incredibly weak trimmed mean (0.2 per cent) and weighted median (0.1 per cent) inflation for the quarter have taken the annual readings down to exceptionally low levels at 1.7 per cent and only 1.4 per cent respectively.</div>
<div> </div>
<div><a href="/images/2016/04/28/A5.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/04/28/A5.jpg" alt=""></div>
<div> </div>
<div>Non-tradables inflation, which is taken to be a reasonable proxy for domestic price pressures, fell to its lowest annual reading since some seventeen years ago in June 1999. </div>
<div> </div>
<div><a href="/images/2016/04/28/A1.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/04/28/A1.jpg" alt=""></div>
 
<div>In the normal course of things this sort of result would make an interest rate cut a no-brainer.</div>
<div> </div>
<div>While markets are suddenly pricing a cut as soon as next week on Budget day as an each-way bet, it would nevertheless still be quite a surprise to see such a change of narrative from the Reserve Bank so soon. </div>
<div> </div>
<div>That said many analysts will now see June and August as potentially live meetings for rate cuts, which could take the cash rate down to a record low of just 1.50 per cent.</div>
<div> </div>
<div>Generally it is said that easy monetary policy brings inflation in time, but if a lack of investment is the underlying problem then it is questionable whether more rate cuts alone will bring this to the party.</div>
 Anyway, what a result, and a game-changer, indeed!
<div>
 Rental growth slowest since 1994
</div>
<div> </div>
<div>There isn't space here to run through all of the positive (education, medical services, pharmaceuticals) and negative (fuel, transport, holidays) contributors to inflation this quarter in detail, but we can see that rental growth has slowed to its lowest level since 1994. </div>
<div> </div>
<div>As you can see depicted in the chart below, the periods when investors were spooked out of the market (1985 to 1987, and 2008) were also precisely the periods when rents spiked.</div>
<div>
 Correspondingly the record surge in investor activity since 2012 in response to low interest rates - which Blind Freddy could have predicted - has led to near-record low levels of rental growth.</div>
<div> </div>
<div>Rampant investor lending has now been successfully stymied so equilibrium should return in due course, as the construction boom also passes its peak. It's always interesting and strangely satisfying when markets work just as they should. </div>
<a href="/images/2016/04/28/A2.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/28/A2.jpg" alt="">
 
<div>Rents have continued to rise modestly in most cities through this cycle, but Darwin (-4.4 per cent) and Perth (-4.4 per cent) are in significantly negative territory year-on-year. On the other hand rents kept rising in Sydney by another +2.3 per cent over the year to March.</div>
<div> </div>
<div><a href="/images/2016/04/28/A4.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/04/28/A4.jpg" alt=""></div>
<div> </div>
<div>Looking instead at annual rental growth we can see how Perth has gone from star pupil straight into detention, and now must work through its elevated vacancy rates before annual rental growth reverts to the mean.</div>
<div> </div>
<div><a href="/images/2016/04/28/A3.jpg" target="_blank">Click to enlarge</a></div>
<div> </div>
<div class="separator"><img src="/images/2016/04/28/A3.jpg" alt=""></div>
<div class="separator"> </div>
<div>Rental growth was also negative in Canberra over the year to March (-0.6 per cent) but looks to be heading back into positive territory in the national's capital, while annual rental growth in Hobart increased to 1.4 per cent in the first quarter.</div>
The wrap 
<div>Well, well. A stunningly low inflation result which wrong-footed markets and puts interest rate cuts right back into the frame. Game on.</div>
<div> </div>
<div>
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>. 
His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.
</div>
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pwargent-M4siyDbqQY

Inflation show stopper: Pete Wargent

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GUEST OBSERVER
The headline CPI surprised in Q1, falling 0.2 percent compared to Westpac’s forecast for +0.4 percent.
The market median was +0.2 percent. The annual rate is now just 1.3 percentyr compared to 1.7 percent/yr in Q4. 
The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.2 percent compared to the market’s expectation of 0.5 percent rise, Westpac was slightly higher at 0.6 percent. In the quarter, the trimmed mean gained 0.21 percent while the weighted median lifted 0.14 percent. The annual pace of the average of the core inflation measures is now 1.5 percent from 2.0 percent in Q4 (Q4 was unrevised).
The six month annualised pace of core inflation came in well below the band at a very modest 1.4 percentyr pace, this is the third quarter in a row it has been below the band and the lowest six month annualised pace since the 1.3 percenty print in March 1999 (a seventeen year low). 
Traded goods prices fell 1.4 percentqtr following a stronger 0.5 percent in Q4. It is true that the significant fall in auto fuels and, if to a lesser extent, falling fruit prices had a big role to play. But even excluding fuel, food and tobacco traded goods fell 1.3 percentqtr. This is much weaker than we had anticipated. 
Non-traded prices rose just 0.4 percentqtr which matched the softer print in Q4. This was due to the softer than expected annual price resetting for health and education. However, more critical to the outlook was the very soft 0.3 percent rise for housing owing to the continue moderation in rents inflation (0.1 percentqtr vs 0.2 percent in Q4) and a very modest update in dwelling prices (just 0.2 percentqtr when we had been looking for a modest bounce from the 0.1 percent print in Q1.
<a href="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%204.25.29%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%204.25.29%20PM.png" alt="">The key observation in the March quarter is the across the board weakness in Australia retail prices highlighted by the first disinflationary CPI headline print in seven years and the lowest six month annualised pace of core inflation in seventeen years.
All together this highlights downside risks for our medium term inflation forecasts. 
But low inflation, on its own, is not a trigger for a rate cut.
Sure, it unlocks the interest rate door for the RBA should it decide it needs to walk through that door as the Bank would not have to wait for another CPI update before doing so. However, it does not mean that the RBA will cut rates! A rate cut is dependent on local economic conditions demanding a rate cut.
With unemployment on a new downtrend this is not so at the moment and we suggest that the RBA is waiting to see a new weaker trend in domestic activity and employment before it would embark on such a strategy. 
Justin Smirk is ‎senior economist, Westpac Group and can be contacted <a href="https://www.westpac.com.au/about-westpac/westpac-group/" target="_blank">here</a>.
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