Queensland builder-developer MAYD has revealed the first look at its major North Kirra beachfront development, lodging amended plans that reduce the number of apartments and increase the proportion of larger residences.

The project is planned across a substantial 4,742 sqm amalgamated site spanning seven lots at <a href="https://www.apartments.com.au/new-apartments/2-6-pacific-parade-bilinga-qld-4225">2-6 Pacific Parade</a> and 27-33 Golden Four Drive in Bilin​ga, directly opposite Nor​th Kirra Beach.

<a href="https://www.apartments.com.au/developers/mayd-group">MAYD</a> secured the site for $32.5 million in 2025, in what was one of the Gold Coast's largest property transactions of the year.

The development will be delivered across two stages, with the first stage carrying an estimated gross realisation value of around $360 million.

The latest amendments seek to reduce the overall apartment count and shift the project further toward the owner-occupier market, with larger residences designed for buyers wanting considerably more space than traditionally offered in a beachfront apartment.

The residential mix will include townhomes, oversized two-bedroom apartments, substantial three-bedroom residences and four-bedroom homes.

MAYD has appointed Cera Stribley to lead the architecture and interiors, with the Melbourne-based design practice drawing on the beachfront setting through a series of ocean-facing terraces and heavily landscaped balconies.

Strong horizontal forms and curved balconies will define the exterior, with subtropical landscaping integrated throughout the building to soften the built form and increase the connection between the residences and the beachfront.

The project will also include an extensive collection of resident wellness and lifestyle facilities, continuing the broader shift across the Gold Coast's luxury apartment market toward larger homes supported by resort-style amenity.

<img alt="MAYD" data-entity-type="file" data-entity-uuid="d1bcbb05-e659-4b47-8bd4-1e595315e2ad" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%202.05.03%E2%80%AFPM.png?VersionId=jj0XEud1X1DuLt7_KyElhjMdZGOXmLHP" />

MAYD Founder Todd Mould said North Kirra was increasingly appealing to buyers attracted to the more established, lower-density character of the southern Gold Coast.

"North Kirra presents one of the most compelling luxury residential opportunities currently emerging in Australia, combining absolute beachfront with the character and authenticity that buyers are increasingly seeking, and the same sense of tight-knit community that defined Burleigh and Currumbin perhaps 10 or 15 years ago," Mould said.

"With Gold Coast Airport on its doorstep, it also offers a level of accessibility that broadens its appeal across almost every market demographic."

The project comes as the southern Gold Coast continues to attract an increasing share of high-end apartment development and buyer activity.

Kirra in particular has emerged as one of the region's more tightly held beachfront markets, with its relatively low-density character, established surf and hospitality scene and proximity to Gold Coast Airport differentiating it from the higher-density markets further north.

Mould said those characteristics had informed the approach MAYD and Cera Stribley had taken to the project.

"We've worked closely with Cera Stribley to create a vision that is deeply connected to its surroundings," he said.

"Inspired by the coastline itself, the architecture has been shaped around space, privacy and resort-style living, creating a collection of homes that reflects the next generation of luxury on the southern Gold Coast."

MOTIV Managing Director Carly Cottam, who has been appointed to market the project, said buyer attention had continued to move south along the Gold Coast.

"Purchasers who may once have defaulted to Broadbeach, Main Beach or Surfers Paradise are increasingly recognising the value of a genuine beachfront location that offers lower density, strong amenity and a more established sense of community," Cottam said.

"Kirra has a powerful combination of growing demand and genuine scarcity. Beachfront supply is inherently constrained, the area remains relatively low density, and buyers are increasingly placing a premium on locations that feel established, uncrowded and authentic rather than heavily developed."

Cottam said the proximity to Gold Coast Airport was also proving increasingly important for interstate and second-home buyers.

"Being minutes from Gold Coast Airport makes it particularly compelling for interstate buyers, frequent travellers and second-home purchasers who can access an authentic coastal lifestyle almost immediately after stepping off a flight."

The acquisition takes MAYD's active development portfolio to more than $500 million, with the North Kirra project representing one of its largest undertakings to date.

MAYD is targeting an early 2027 launch.

Joel Robinson

First look at MAYD's North Kirra mixed-use precinct

<main data-perf-region="main">
Castle Hill, the longtime hub of the Hills District, has been one of the major beneficiaries of Sydney's Metro expansion, with improved connectivity helping drive continued population growth, development and buyer demand across the Hills District.

But despite that growth, the suburb has seen relatively few major new apartment projects brought to market over the past 18 months.

Hills District developer Reve Group is looking to fill that gap with <a href="https://www.apartments.com.au/new-apartments/nova-r-ve-castle-hill-2-garthowen-crescent-castle-hill-nsw-2154">Nova Rêve</a>, a major new mixed-use precinct on the corner of Garthowen Crescent and Old Castle Hill Road, a short walk from Castle Hill Metro Station and Castle Towers.

[smartcode_project:default project_id=152737 project_image_fid=377679]

The project will comprise three residential towers alongside a hotel, restaurants, cafes and a skybar, more than 1,600 sqm of ground-floor retail and almost an acre of landscaped gardens.

It represents the largest project undertaken by Reve Group, the development arm of the Kassis family, which has been building across the Hills District for more than 30 years through Kassis Homes.

[smartcode_project:default project_id=152737 project_image_fid=377675]

Nova Rêve also represents a significant step up from the family's first apartment development, Grand Rêve, which was delivered nearby on Garthowen Crescent.

Grand Rêve introduced larger, house-like apartment layouts and premium inclusions including Wolf and Sub-Zero appliances to the Castle Hill market.

Nova Rêve takes that approach to a precinct scale, combining the residential component with hospitality, retail and substantial public and resident landscaping.

[smartcode_project:default project_id=152737 project_image_fid=377685]

Reve Group Managing Director Sam Kassis said the project reflected the family's three decades of building in the Hills, which has evolved from trophy homes on quarter-acre blocks to larger-scale apartment development.

"Grand Rêve was our first apartment project here and it showed us what this pocket of Castle Hill could be. Nova Rêve is the refinement of that idea: not just apartments, but a place the whole suburb can use," Kassis said.

A key part of that approach is the hotel, which has been designed to operate as an amenity for the wider Castle Hill community rather than solely hotel guests.

It will include restaurants, cafes, skybars and all-day dining, alongside conference and event facilities catering to business functions, community groups and private events.

At ground level, more than 1,600 sqm of shops and cafes will open onto the surrounding streets and landscaped areas.

Almost an acre of gardens designed by Land and Form Studios will run through the precinct, incorporating pathways, seating, barbecue areas and children's play spaces.

[smartcode_project:default project_id=152737 project_image_fid=377680]

Reve Group's Romio Georges said creating an active ground plane had been central to the planning of Nova Rêve.

"There are gardens with pathways, barbecues, seating and play areas, shops and cafes opening onto the street, and a hotel with restaurants and a skybar that anyone in Castle Hill can walk into," Georges said.

The project's elevated position on one of Sydney's highest ridgelines will also provide apartments with outlooks toward the Sydney skyline, surrounding parkland and the Blue Mountains.

More than 80 per cent of the apartments will occupy corner positions, with Turner responsible for both the architecture and interiors.

&nbsp;

[smartcode_project_cta:default project_id=152737]

<h3 data-end="3697" data-section-id="q3n5ak" data-start="3672">&nbsp;</h3>
</main>

Nova Rêve arrives as Reve Group bets on Castle Hill's next growth phase

A collection of just 25 large-format apartments and penthouses overlooking Goodwin Park is entering the Coolangatta market, with <a href="https://www.apartments.com.au/new-apartments/marea-residences-coolangatta-27-27a-dixon-street-coolangatta-qld-4225">Maréa Residences</a> combining a low-density, residential-only approach with uninterrupted park and Pacific Ocean outlooks.

Located at 27 Dixon Street, Maréa comprises three and four-bedroom residences alongside a limited number of dual-level penthouses, with the project positioned between Goodwin Park and <a href="https://www.apartments.com.au/developments/coolangatta-qld-4225">Coolangatta</a>’s coastal precinct.

Construction has commenced, with completion currently estimated for late 2027. Three-bedroom residences are priced from $1.8 million.

[smartcode_project:default project_id=150999 project_image_fid=374005]

The project has been designed around its northern outlook across the park, with the building’s architecture, landscaping and material palette intended to establish a connection with the neighbouring green space. The residences have been configured to maximise natural light and views across Goodwin Park towards the ocean.

Inside, the material palette incorporates timber, stone and brushed brass, complemented by curved detailing and ambient lighting. Kitchens and bathrooms carry the same natural material approach, while residences also include basement parking, storage and lift access.

Maréa’s penthouses are arranged over two levels and include private pools, adding another layer to the project’s focus on larger-format apartment living. Across the development, residences are configured with three or four bedrooms rather than the broader mix of smaller apartment types commonly found in larger projects.

[smartcode_project:default project_id=150999 project_image_fid=374010]

Resident amenity is concentrated at rooftop level, where landscaped entertaining terraces and pools take advantage of elevated views across Coolangatta and the Pacific Ocean.

The project has so far been particularly well received by local owner-occupiers and downsizers, according to Urban Activation Property Sales and Marketing Director Matt George, with the residential-only format, construction quality and northern park outlook among the features resonating with purchasers.

“The uninterrupted northern aspect overlooking Goodwin Park has been a key point of difference, with buyers attracted to the sense of serenity and open space the park provides, while still enjoying easy access to the ocean and being within walking distance of the lifestyle and amenities Coolangatta has to offer,” George said.

[smartcode_project:default project_id=150999 project_image_fid=374002]

“The combination of high-quality construction, a residential-only building, park outlook and proximity to the beach has resonated strongly with the local downsizer market.”

The Dixon Street address is within walking distance of Coolangatta Beach and the broader southern Gold Coast coastline, including the surf breaks at Snapper Rocks and Kirra. Coolangatta’s cafés, restaurants and retail are nearby, while Gold Coast Airport is also within close proximity.

[smartcode_project_cta:default project_id=150999]

Maréa Residences brings parkside apartments to Coolangatta

Melbourne developer PDG has secured Victorian Government approval for its $1.5 billion Southbank development <a href="https://www.apartments.com.au/new-apartments/the-one-1-queens-bridge-street-southbank-vic-3006">The One</a>, clearing the way for the long-dormant riverfront site opposite Crown to finally be developed.

The Minister for Planning has approved the project at 1-29 Queens Bridge Street, with the Department of Transport and Planning issuing the planning permit following its assessment.

The approval will allow PDG to develop the prominent 5,059 sqm site with a major mixed-use tower comprising premium apartments, including branded residences, a luxury hotel and boutique office space.

PDG acquired the site in late 2024, with its position directly opposite Crown's main entrance and near Melbourne's Arts Precinct making it one of Southbank's most significant remaining development opportunities.

<img alt="PDG" data-entity-type="file" data-entity-uuid="3933013e-6332-4386-b9be-089df05caf17" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.22%E2%80%AFAM.png?VersionId=sITIgBqDL0N3VNSMwWEmF5UA.uvcsRyu" />

Designed by COX in collaboration with ODO and PDG, the tower's architecture draws on the movement of the Yarra River, with six vertical pleats running the height of the sculpted facade.

The project will also see the heritage-listed Queens Bridge Hotel restored and incorporated into the development&nbsp;with new hospitality and public uses, including a rooftop venue.

A significant component of The One will be its residential amenity.

More than 5,000 sqm of resident facilities will be delivered across a single level, making it one of the largest consolidated residential amenity offerings proposed in an Australian apartment development.

The planning approval also incorporates a major upgrade of Queensbridge Square, which PDG will deliver in partnership with the City of Melbourne.

<img alt="PDG" data-entity-type="file" data-entity-uuid="73167fcd-1031-4b6f-a408-a064cfe45ed1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.17%E2%80%AFAM.png?VersionId=Pf1AEWxw6SNmBqR0zQW5lyEze.MtxgFp" />

The existing square will be revitalised as a new civic and pedestrian space along the Yarra River, strengthening the connection between the project, Southbank and the riverfront.

PDG Founder and Managing Director Vince Giuliano said the approval represented a major milestone for a site which has remained largely underutilised for more than 15 years.

“This is the most significant Planning Permit approval Melbourne has seen in recent years,” Giuliano said.

“For more than 15 years, this site has remained underutilised. This approval enables us to deliver a project that will contribute meaningfully to the revitalisation of Southbank, restore and reactivate an important heritage building, and create a new civic and hospitality destination for Melbourne.”

The latest approval follows an earlier planning permit issued by the City of Melbourne covering demolition works across part of the site at 9-29 Queens Bridge Street. Those demolition and early works are already underway.

PDG has also started generating early interest in the residential component from owner-occupiers ahead of a planned public launch in early 2027.

PDG secures approval for $1.5bn Southbank apartment development, The One

Local developer Harridan is seeking to turn its Woolloongabba apartment project into the first stage of a broader transformation of Burke Street, using a new 16-storey mixed-use building to establish a greener pedestrian connection toward the rapidly evolving Boggo Road transport and knowledge precinct.

The South East Queensland developer has filed plans for 154 apartments on the <a href="https://www.apartments.com.au/new-apartments/4-burke-street-woolloongabba-qld-4102">southern side of Burke Street</a>, where its proposal has been designed alongside a wider vision by LatStudios for the street.

That vision positions the southern side of Burke Street for buildings of 15 storeys and above, while envisaging lower-rise development of up to five storeys on the northern side to transition into Woolloongabba's existing character housing. It also proposes wider pedestrian verges, deep planting, new street trees and upgrades to the pedestrian approach to Boggo Road Station.

The Harridan development itself has been designed by Brisbane-based Arqus Design and will comprise 154 apartments across 16 storeys. The mix is weighted heavily toward two-bedroom apartments, with 121 proposed alongside 10 one-bedroom and 23 three-bedroom residences. There will typically be around 14 units per floor.

A lower-ground car park and three podium levels will accommodate 156 resident parking spaces, along with visitor and commercial parking. There will also be 154 resident bicycle spaces and 40 visitor bicycle parks.

&nbsp;

Harridan is a family-owned developer and part of the Holmwood Highgate Group, with more than three decades of development activity across South East Queensland. Its portfolio spans residential, commercial and industrial property, with current residential projects including Riverbank on Byron in Bulimba, Esperance Residences in Carina and The Precinct at Kinross Road in Thornlands.

Wooloongabba has been popular for apartment developers, particularly since the announcement of the 2032 Summer Olympics games in Brisbane.

While there have been a lot of development applications, it has failed to materialize into real supply.&nbsp;

Sarazin has been the major player in the area. They are under construction at Murcia Residences, on the fringe of East Brisbane and Woolloongabba. They have just launched <a href="https://www.apartments.com.au/new-apartments/the-stanley-residences-woolloongabba-8-trafalgar-street-woolloongabba-qld-4102">The Stanley Residences</a>, in Woolloongabba on Trafalagar Street. They also have Nuage coming soon on the nearby <a href="https://www.apartments.com.au/new-apartments/nuage-woolloongabba-14-wellington-road-woolloongabba-qld-4102">Wellington Road</a>.

First look: Harridan plans Burke Street transformation beside Boggo Road transport hub

Inflation

<html><body>
GUEST OBSERVER
Today’s extraordinarily low annual headline and underlying inflation rates reflect not only lower petrol prices but widespread price discounting by retailers. Six of the eleven CPI categories had price falls in the quarter.
The QI CPI fell by 0.2 percent, sharply lower than the market expectation which centred on a rise of 0.2 percent (CBA (f) 0.3%). The AUD fell about US1 cent and interest rate futures are now pricing in a 55 percent chance of an RBA rate cut next Tuesday. While the headline inflation rate in annual terms is low, at 1.3 percent, it is the underlying inflation rate which is the big issue. It is running at 1.5 percent, the lowest rate on record. 
The 10% fall in petrol prices was largely expected. But the big expenditure categories also surprised with low results. Food prices (fruit, dairy, cakes and cereals) fell by 0.2% in the March quarter to be unchanged over the past year. It most probably reflects the competitive pressures between the big supermarkets and the new entrants. Housing costs, the largest expenditure category, rose by only 0.3 percent to be just 1.7 percent higher over the year. Even the highly regulated sectors, health and education, had relatively low QI rises (for them) of 1.9 percent and 3.1 percent. 
<a href="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%202.58.12%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%202.58.12%20PM.png" alt="">
The lower AUD over the past year has not, so far, produced the usual higher imported consumer goods and services prices. Tradables inflation fell by 1.4 percent in QI, reflecting the falls in petrol, furnishings, clothing, audio-visual equipment and international holiday travel. 
We are reviewing our RBA rate call in light of the lower than expected inflation trends. Clearly the chances of a rate cut next week have moved a lot higher. But today’s numbers may still not “demand” a rate cut. 
The RBA has tolerated below target inflation on a number of occasions. It is after all how the inflation targeting regime is supposed to work. The last time we saw inflation rates around the current figures was in 1997-98. Back then there were 6 out of 7 quarters where underlying inflation was below target. For most of that period the RBA left the cash rate at 5 percent.
There was a one-off 25bpt cut at the very end of 1998 (after 6 quarters of below target inflation). That cut was justified more on a deteriorating global outlook rather than low inflation. When thinking about what today’s CPI outcome will mean for RBA forecasts it is worth remembering that the Q4 GDP numbers were noticeably stronger than the RBA was expecting (2.5 percent expected versus 3 percent actual). Higher GDP and a lower unemployment rate, now 5.7 percent, mean the “if needed” components for a rate cut are not quite as pressing. With the release of today’s Australian CPI our replica of the RBA’s model suggests the Australian real TWI is less overvalued than previously estimated. In fact, the Australian real TWI is just inside the fair value band (+/- one standard deviation).
<a href="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%203.02.05%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%203.02.05%20PM.png" alt=""> 
The detail 
As anticipated, the volatile items had a major impact on the much lower than expected headline CPI outcome of a 0.2 percent fall. The QI CPI (excluding volatile items) rose by 0.2 percent (to be up 1.7 percent on a year ago). In other words, the volatile items sliced 0.4 percent from the headline QI CPI. 
Leading the volatiles deflationary impact were petrol prices which dived by 10 percent over QI, to be 6.4 percent lower over the year. The QI petrol prices drop sliced 0.31ppts from the QI CPI outcome. The other key volatile item, namely fruit and vegetable prices sliced 0.11pts from the headline QI CPI. The key driver was an 11.1percent drop in fruit prices (down 6.9 percent pa) which made a 0.13ppt negative contribution to headline inflation. This impact was partially offset by a 1.5 percent rise in vegetable prices in QI (but which were down 4.3 percent in annual terms). 
These volatile items account for most of the gap between underlying and headline inflation forecasts. 
Price falls 
Six of the eleven components of the headline CPI registered price falls in QI. As mentioned above and as expected, the sharp decline in automotive fuel prices was the most prominent factor deflating the quarterly headline CPI result. 
Other CPI items weighing down on the headline outcome were clothing and footwear prices which dropped by 2.6 percent in QI and made a negative 0.1ppt contribution. The main contributor to the decline in this component was accessories prices which declined by 4.3 percent in QI. 
The other CPI categories posting falls in QI were the recreation and culture group, (-1.0 percent), the communications group (-1.5 percent), and furnishings household equipment and services (-0.4 percent). The main contributors to the fall in the recreation and culture group prices were international holiday travel and accommodation (-2.0 percent) and domestic holiday travel and accommodation (-1.9 percent). 
Elsewhere, a 1.7 percent drop in telecommunications equipment and services was the key driver of the 1.5 percent fall in communications group prices. Meanwhile, a 4.1 percent fall in household textiles prices and a 1.6 percent decline in furniture prices contributed to the 0.4 percent decrease in furnishings and household equipment and services prices. 
Price rises 
The largest offsetting price rises in QI were secondary education (+4.6percent), medical and hospital services (+1.6percent) and pharmaceutical products prices (+ 4.8percent). These outcomes are largely due to seasonal factors but were smaller than usual. Overall, these health and education groups contributed 0.2ppts to the QI CPI. 
Also contributing in a positive way to the quarterly headline CPI outcome were increases in household fuels (+3.0percent) and new dwelling purchasing by owner occupiers (+0.2percent) suggesting housing activity may well be cooling but it certainly isn’t crashing. 
<a href="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%203.14.22%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/27/Screen%20Shot%202016-04-27%20at%203.14.22%20PM.png" alt="">
Imported or “tradables” inflation 
Tradables prices fell by 1.4percent in QI and were up by a modest 0.6percent over the year to March. The quarterly fall in tradables prices was due to a combination of the higher AUD in QI, falling fuel prices, and falling international holiday travel and accommodation prices. Tradable prices make up 40percent of the CPI basket and are a reflection of imported prices. 
Domestic or “non-tradables” inflation 
Domestic inflation or non-tradables inflation rose by a modest 0.4percent over QI and lifted by a tame 1.7percent on a year ago. This category accounts for around 60percent of the total CPI basket. The most significant contributors to the QI rise in non-tradables inflation were increases in gas and other household fuels and beer prices. Also, the non tradables services of secondary education and medical and hospital services prices helped the quarterly rise in this component. The key offsetting declines in 
non tradables inflation were electricity prices and domestic holiday and accommodation and telecommunication equipment prices. 
Plenty of spare capacity in the economy and softer wages growth has helped cap non-tradables inflation in recent quarters. 
States 
It is very unusual to see uniformly low inflation across all the capital cities. Prices rose in Canberra by 0.2percent in QI, were flat in Brisbane and fell in the other capitals. 
The price falls were in Sydney, -0.2percent, Melbourne -0.1percent, Adelaide -0.3percent, Perth -0.6percent, Hobart -0.2percent and Darwin -0.9percent. Perth and Darwin had the largest QI price falls. 
In annual terms, inflation was running highest in Melbourne and Brisbane at 1.7percent, then 1.3percent in Sydney and Hobart, 1.0percent in Canberra, 0.7percent in Perth and Adelaide, and -0.3percent in Darwin. 
The capital cities with the weakest retail activity, like Perth, Adelaide and Darwin have the weakest inflation outcomes, indicating the widespread retail discounting pressure. But there are other issues underway. Perth’s residential rents have fallen 4.4percent over the past year. 
Wages trends and inflation 
Wages trends provide a major input to structural inflation in the Australian economy. The trend around private sector wages over the past few years is towards consistently lower than expected outcomes. There are also clear compressions in wages outcomes across industry sectors and regions which are relatively new phenomenon and have been a feature of the post-mining investment and construction boom landscape. 
Annual private sector wages growth was running at a paltry 2percent in the year to December 2015, the weakest growth rate since the series began in 1997, and well below the 3percent to 4percent annual growth that has been the norm from the late 1990s until after the mining boom started to dissipate. Ongoing spare capacity in the labour market and job security anxieties are likely to continue to cap wages growth by workers limiting wage claims. 
Nationally, QIV wages growth continued to track lower in a range of industries and all industries have experienced wages growth well below their decade averages. On an industry basis across all sectors (i.e. public and private) the strongest annual wages growth was posted in financial and insurance services at 2.8percentpa, and weakest in mining at 1.5percentpa. 
The industry sector wages outcomes show that about 80 percent of industries are paying less than 2.5percent wage increases and the remaining 20percent are between 2.5percent and 3.0percent. The regional trends are also similar, with a trend towards State wage growth below 2.5percent. WA, the State with the highest wages growth for the decade up to 2013, now has growth of just 2percent. The end of the mining boom is having similar effects on wages trends in Queensland and NT. 
The sectors with the strongest jobs growth over the past few years are health, accommodation, cafes and retail. They also tend to be ones where part-time employment is significantly higher than in other sectors. The sectors with mainly full-time employment, like mining, utilities and construction, are losing jobs. So the pressures in the labour market that favour more part-time employment are producing a period of distinctly lower wages outcomes. 
A key reason behind ongoing tepid wages growth recently could be that a much more flexible labour market in recent years has enabled companies’ greater capacity to cap wages growth in a lacklustre labour market. In a period of labour market slack employees tend to be more satisfied to accept lower wages growth in return for more job security. 
The resultant ongoing tame wages growth seems to have contributed to more jobs growth than normally would have been the case. Indeed, the latest employment data showed annual jobs growth of 2.0percentpa. (I.e. +235.3k or an average +19.6k a month) in March. The unemployment rate stood at 5.7percent in March.
Ongoing soft wages growth and labour costs have helped wind back non-tradables (or domestic) inflation in recent quarters. This is especially the case for services inflation (with its very high labour component). Thus modest wages growth is a very handy tool in maintaining the current low inflation environment. 
Inflation expectations 
Central banks and policy makers care about inflation rates and where they may be headed. But they also care about the inflation expectations held by businesses and consumers. These expectations influence how economic agents act, with a flow on to economic activity. And these expectations influence the support or restraint that a given level of interest rates provides. 
The extended period of weak inflation in many countries has seen inflation expectations move lower. Some central banks have become concerned about the impact of low expectations. And certainly some recent policy easings in Europe, Japan and New Zealand reflect these concerns. Even in the US, where interest rates have been nudged higher, Fed Chair Yellen has recently expressed concerns about low inflation expectations. They are yet another reason for a caution approach to rate changes by the Fed. 
Our thoughts on global inflation expectation trends and what they mean for policy directions can be found here. 
The RBA monitors inflation expectations. But they are of less concern than for other central banks. They are rarely mentioned in post RBA meeting Statements. And comments are generally limited to a summary paragraph in the quarterly Statement on Monetary Policy (SMP). 
More importantly, inflation expectations in Australia are low but look well anchored. They have not been influenced by low headline inflation rates and the general lack of business pricing power. 
Policy makers are actually probably quite happy with aspects of the inflation expectations story. The decline in house price expectations as views on the housing market have softened will be seen as a desirable outcome. Especially given the concerns evident about rapid price growth and elevated expectations in 2015. The restraint in wage expectations is seen as a positive through the support it gives to labour demand.
Michael Workman is senior economist, <a href="https://www.commbank.com.au/corporate/research?ei=mv_research" target="_blank">Commonwealth Bank</a>.
</body></html>

jchancellor-FAypfDUnLy

Low inflation raises the chances of an RBA rate cut next week: CBA's Michael Workman

<html><body>
GUEST OBSERVER
<a name="x_OLE_LINK9" target="_blank" href=""></a>Inflation is pretty much non-existent. In fact in the March quarter the Australian economy essentially went through a period of deflation.
The economic environment in Australia is still far different from other parts of the globe, but when it comes to inflation central banks across that globe are facing the same concerns. The euro zone continues to worry about the deflationary threat from sluggish growth and sliding oil prices, while inflation remains below the Fed’s target rate in the US. And here in Australia inflation is holding below the Reserve Bank’s target 2-3 percent.
It is pretty clear that inflation is not a threat to the domestic economy, meaning that the Reserve Bank can comfortably keep interest rates at exceptionally low levels over the medium term. Domestic inflationary pressures remain well contained and given the slow growth in wages it is unlikely to result in a change to the domestic inflation landscape.
The headline inflation measure fell by 0.2 percent in the March quarter, and even more importantly some of the underlying measures were decidedly soft. The annual growth rates remain below the low end of the Reserve Bank’s 2-3 percent target band. The average of the three key underlying inflation measures lifted by 0.2 per cent in the quarter to be up 1.6 per cent over the year.
Looking across the contributors to inflation, the seasonal increases in education fees and medical services were amongst the key factors driving inflation higher. While the fuel price recorded a 10 per cent decline in the March quarter. Whichever way you cut it, inflation is not a threat to the economy. Interestingly the stronger Aussie dollar over the March quarter, seems to have had a significant impact on curtailing imported inflation. The tradeable component of the CPI result fell by 1.4 per cent in the March quarter.
While we don’t think there is a screaming need for interest rates to be cut on economic activity grounds, the low inflation result opens the door for the Reserve Bank to cut rates if they deem it is necessary. The question is whether the Reserve Bank believes that cutting interest rates will actually provide a boost to the economy given that interest rates are already at generational lows.
Interestingly if the Reserve Bank did not cut rates next week, the market could take that as a sign that it would take a drastic downturn in the domestic economy to cut rates and as such it would provide more impetus for the Australian dollar – an undesirable result. The bottom line is that underlying inflation is undershooting the 2-3 per cent target band and that suggests little risk in cutting rates a little further. CommSec believes there is a strong chance the Reserve Bank will cut the cash rate to a historical low of 1.75 per cent in May.
<a href="/images/2016/04/27/image003.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/27/image003.png" alt="">
What do the figures show?
CPI
The All Groups Consumer Price Index (CPI) fell by 0.2 per cent in the March quarter, well below expectations. In seasonally adjusted terms the CPI fell by 0.1 per cent. The annual rate of inflation fell from 1.7 per cent to 1.3 per cent.
Underlying measures of inflation were lower than forecasts in the March quarter. The trimmed mean rose by 0.2 per cent in the March quarter (1.7 per cent annual); the weighted median rose by 0.1 per cent (1.4 per cent annual) and the CPI less volatile items rose by 0.2 per cent (0.6 per cent annual). Overall, underlying inflation rose by 0.2 per cent in the quarter and by 1.6 per cent over the year (equal lowest growth in 33 years of records).
The Bureau of Statistics noted: “The most significant price falls this quarter are automotive fuel (-10.0%), fruit (-11.1%) and international holiday travel and accommodation (-2.0%). The most significant offsetting price rises this quarter are secondary education (+4.6%), medical and hospital services (+1.6%) and pharmaceutical products (+4.8%).”
Prices of tradables fell by 1.4 per cent in the March quarter, driven by lower prices for automotive fuel. The most significant offsetting rise in the tradable goods component was for pharmaceutical products. The tradables component rose by 0.8 per cent over the year to March.
Prices of non-tradables rose by 0.4 per cent in the March quarter. Price increases were recorded for secondary education, gas and other household fuels, and beer. The most significant offsetting fall was for electricity and domestic holiday travel and accommodation. Non-tradables prices rose by 1.7 per cent in the year to March. Tradable goods are those items whose prices are largely determined on the world market. Non-tradable prices are more affected by domestic economic conditions.
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 per cent 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?
At present the national economy is tracking ok. Economic growth is healthy and more encouragingly unemployment is at a 2½-year low. However the concern for policymakers is that the deflationary environment becomes more firmly entrenched in coming quarters. A sustained super low inflation landscape will lead to low inflationary expectations over time and in turn a shift in asset allocation.
It seems there is a broader thematic playing out. The technology disruption and the ability to be able to buy goods whenever and wherever you want is adding to the already challenging environment for domestic businesses. Essentially making it hard to lift prices. The key for business in a low inflation environment is to lift productivity. 
CommSec believes there is a credible risk that the Reserve Bank cuts interest rates to 1.75 per cent next week.
The focus now shifts to the Federal Reserve (FOMC) meeting and rates decision (due out tomorrow morning) and the likely impact on the Australian dollar – particularly given the Fed has been more cautious in recent rhetoric d on the outlook for interest rate hikes.
Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>
</body></html>

First fall in prices in seven years: CommSec's Savanth Sebastian

<html><body>
GUEST OBSERVER
The minutes of the April monetary policy meeting of the Board of the RBA provided few surprises but some notable choices in wording and some elaboration on key themes in the Governor’s decision statement.
Recall that the minutes relate to a meeting on April 5 and pre-date more positive monthly data on jobs and surveyed business conditions but also a drop in consumer sentiment and a further rise in the AUD.
Our main points of interest are the discussion in the ‘Considerations for policy’ section and the additional detail on assessments of current conditions and prospects.
The minutes repeat the main points from the Governor’s decision statement, including the key line that “Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand”, a more upbeat assessment on the economy following the December quarter national accounts, commentary on the AUD that was more ‘factual’ than ‘critical’, and reduced concern about the potential impact of “financial turbulence” which was a more prominent issue in March.
The key new takeaways from the minutes are:
<ul>
<li>a clear assessment that the more positive tone on domestic activity was carrying into 2016;</li>
<li>slightly more stress being placed on the current degree of policy stimulus;</li>
<li>a bolstering of expectations that inflation will remain low;</li>
<li>and the critical channel of concern for the AUD rise being the impact on the services export sector. </li>
</ul>
Taking each of these point in turn:
The Governor’s statement had relatively little to say on Australian economic activity other than that the economy was continuing to rebalance and there were reasonable prospects for continued growth. The minutes flesh this out much more with key comments elevated to the ‘considerations’ section. 
The key line here is: “Domestically, the latest national accounts data suggested that the economy grew at a moderate pace in the December quarter and more recent data were consistent with this having continued in early 2016.” That compares to the comment in the March meeting minutes that “available data suggested that the domestic economy had continued to grow at a slightly below-trend pace”. It is somewhat interesting that the April minutes do not mention growth in relation to trend (on most measures it would be best described as near trend). However, the main point is really that this momentum is seen as having carried into 2016, a view that would have been reinforced by the March labour force survey and March business survey results.
The ‘considerations’ section included a notable tweak in wording on current policy settings, assessed as “very accommodative” rather than merely “accommodative” in the Governor’s statement. Although the meaning of this shift is open to interpretation, we would view putting more emphasis on the degree of stimulus as a subtle way of saying that the ‘hurdle’ for additional stimulus measures is higher. The shift in wording seems a little odd given the degree of attention paid to the wording in the Governor’s statement.
On inflation, the ‘considerations’ section emphasises the downside: “On all measures, wage growth remained at quite low levels and domestic cost pressures, more generally, remained subdued. Combined with the appreciation of the exchange rate and the low level of inflation globally, this suggested that inflation in Australia was likely to remain low over the next year or two.” This compares to the same section in the March minutes which simply noted “Wage growth had remained at quite low levels”. The commentary is pointing towards a likely lowering in the RBA’s inflation forecasts, something we have flagged as a possibility.
On the AUD, the key minutes repeated the concern that “an appreciating exchange rate could complicate progress in activity rebalancing towards non-mining sectors”. Two other comments provide an important elaboration on this: “Members noted that the recent rebound in commodity prices, even if sustained, was unlikely to lead to any material change in mining investment over the next couple of years”; and “Members observed that [the net services exports] component of GDP was one of the most sensitive to changes in the exchange rate and discussed the impact of exchange rate movements on the economy more broadly.” 
That suggests the key complicating factor from an AUD rise is that the degree of stimulus from an associated rise in the terms of trade for the mining sector may be limited and that the main source of weakness could be around services exports. That in turn suggests activity measures in the latter – confidence, conditions, employment – will be the critical test for whether the rise is becoming a factor (i.e. “could complicate” becoming “is complicating”). Clearly the RBA is greatly interested in the sectoral make-up of activity indicators in coming months.
Aside from these main points, the minutes seemed a little more positive on international conditions – China in particular where the pace of overall growth was described as having been broadly unchanged in the first two months of 2016 vs referring to “continued weakness in the industrial and real estate sectors” back in March – and financial markets which had improved, but were wary of the rally in Australia’s commodity prices.
Conclusion
The minutes provide some valuable insight into the Bank’s assessment of conditions domestically and the nature of the risks it is assessing, particularly around the recent gains in the AUD. Both continue to suggest the Bank is comfortable with current policy settings and although there are clearly risks around the outlook, particularly vis a vis the AUD, we are comfortable to retain our call that rates will remain on hold for the remainder of 2016, with the proviso that we do not envisage a further significant surge in the AUD.
We continue to see the Bank’s strategy on the AUD as hinging on whether 'new' levels of the currency are sufficient to markedly change its forecasts for inflation and, much more importantly, growth. The RBA will provide updated forecasts in its May Statement on Monetary Policy (due May 6). 
On growth we expect the stronger than expected Q4 national accounts to offset downward revisions from a higher currency, holding the RBA’s forecast steady at 3% – at most growth may be revised down 0.25ppts but even this would leave its 2016 forecast at ‘trend’. On inflation, the March quarter CPI (due April 27) is key input – our expectation of a 0.6 percent/qtr gain in the core CPI measure is also likely to limit any downgrade to the Bank’s forecasts with its 2016 view on underlying inflation likely to be pared back 0.25ppts to a range mid-point of 2.25 percent for 2016. Neither of these adjustments look like being substantive enough to trigger a policy response.
Matthew Hassan is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
</body></html>

Possible lowering of RBA's inflation forecasts: Westpac's Matthew Hassan

<html><body>
OPENING STATEMENT
Since the Committee's previous meeting in September, we have continued to see evidence that economic activity outside the resources sector has been gradually improving.
The pattern observed six months ago whereby business surveys were suggesting improving conditions by and large continued through to the end of the year.
Inevitably, this expansion is not uniform across the country or across industries. Areas that led the growth dynamic a few years ago are on the trailing edge now.
Conversely, some that were subdued for a few years are among those leading growth today.
But few, if any, expansions are completely even, either geographically or by industry.
Given the nature of the economic events through which we have been living, moreover, it is not surprising that there are differences.
The good thing is that there are strong areas to counteract the weak ones.
The available information suggests that real GDP is expanding at pace a bit lower than what we used to think of as normal.
Our estimate is that growth over the four quarters of 2015 was about 2½ per cent.
This continued expansion has occurred in the face of a very large contraction in capital spending in the mining sector, restrained public final spending and the reduction in national income coming from the declining terms of trade.
It has been helped by easy monetary policy and the lower exchange rate.
Notwithstanding below-average GDP growth, the demand for labour increased at an above average pace in 2015.
The number of people employed, as measured, increased by well over 2 per cent, participation in the labour force picked up and the rate of unemployment declined, to be below 6 per cent.
That is a noticeably better outcome than we expected a year ago.
This poses the obvious question of how, with apparently still somewhat below-trend GDP growth, the rate of unemployment has fallen. And whether the pattern will continue.
Of course, it may be that the labour force data overstate the strength.
Alternatively they may be telling us something not yet apparent in the GDP estimates. More data may shed light on this question over time.
Part of the reconciliation appears to be that growth has been concentrated somewhat in labour-intensive areas, like certain household and business services.
Another part of the reconciliation probably lies in the very modest pace of growth of labour costs.
At any given rate of unemployment, wages growth appears to have been lower than would have been expected based on historical relationships. In fact, at an economy-wide level, unit labour costs – that is, wages per unit of aggregate output – have not risen for four years. This has surely helped employment.
This same phenomenon is also important in understanding the behaviour of inflation, which has been quite low.
As measured by the Consumer Price Index, inflation was 1.7 per cent over 2015.
This was affected by falling prices for petrol and utilities, the latter in part due to government policy decisions.
But even the underlying measures, which remove or down‑weight such effects, at around 2 per cent, are low. Price rises for non-tradeable items are at their lowest for many years, and this reflects, among other things, the modest growth of labour costs.
In summary then, the economy is continuing to grow at a modest pace, in the face of considerable adjustment challenges. It has apparently been generating more employment growth and lower unemployment than we expected, while inflation has remained quite low.
Turning then to the rest of the world, there have been some key developments since we last met with the Committee.
In December, the United States Federal Reserve raised its policy interest rate for the first time in 9½ years.
The last time the Fed actually started an upward phase in rates was as far back as 2004.
The Fed's rationale for this change was that the US economy had sufficient strength that a zero interest rate was no longer needed – and, as such, it is a welcome development.
The change had been very well telegraphed and was absorbed by financial markets without any immediate disruption.
That said, US dollar funding costs are important to many financial strategies around the world and when they start to increase, however gradually, investors adjust their positions.
This had already been happening in anticipation of the Fed's decision, with funds seeking to lessen their exposures to emerging markets, high-yield debt instruments and so on.
These adjustments continued subsequent to the Fed announcement. For some emerging market economies, facing lower commodity export prices, things have become more challenging.
At the same time, some other major jurisdictions have sought to ease their monetary policies further.
Both the European Central Bank and the Bank of Japan have pushed rates on some deposits at the central bank below zero. In other words, policy trajectories among the major jurisdictions are diverging, which creates the potential for market movements, not least in exchange rates.
Meanwhile, the Chinese economy has become more of a concern for many observers.
It is not that the actual data on the Chinese economy are all that different from what we had been seeing.
They paint a picture of softness in growth – but they were already saying that some time ago.
The more recent anxiety is probably best described as greater uncertainty over the intentions of Chinese policymakers and over whether they will be able to carry off the economic transition China needs. This anxiety has been reflected in capital flows.
Commodity prices have generally fallen further over recent months. Most prominent was the further fall in crude oil prices to about US$30 per barrel.
While this level of oil prices is not especially low in a longer-run historical context, it is a large decline from prices prevailing in recent years and is bringing considerable adjustment.
Oil-producing companies and nations are seeing a decline in their incomes, and yields on debt issued by corporates in the energy sector have increased sharply.
Exploration expenditure and investment in new capacity is being rapidly curtailed.
Sovereign asset managers for some key oil producers are liquidating some assets to help manage the effects on fiscal positions.
As with most price changes, there are gainers as well as losers.
The fall in energy costs is a windfall to energy users and represents a terms of trade gain for countries that are net importers.
Importantly, it does not appear to be the case that the fall has predominantly been caused by weak demand for oil.
Indications are that oil demand has still been rising, albeit not as quickly as it had been.
Supply increases appear to have been more important than demand factors in explaining the large price fall, at least thus far. Hence, we should not interpret the decline in oil prices as uniformly negative.
On the contrary, a fall in oil prices resulting from additional supply has usually been seen clearly as a bonus for consumers and many businesses in advanced economies, including Australia.
In financial markets, as investors and traders have sought to make sense of all these conflicting currents, we have seen a period of volatility recently.
This has been apparent in equity and bond markets, as well as foreign exchange markets.
Equity markets are lower, yields for core sovereign obligations are lower, spreads for lower-rated corporates and emerging market sovereigns are wider.
Exchange rates have seen more variability, with currencies for many emerging market countries weaker.
The Australian dollar is around the same level now as when we last met with the Committee, though commodity prices are lower.
Looking ahead, forecasters expect a bit less growth in the global economy this year than they did a few months ago.
Expectations for Australia's trading partner group itself are for growth to be a bit below average, little changed from six months ago.
Inflationary pressures globally look quite subdued. Global interest rates will still be very low, even if short-term rates move up a bit further in the United States.
For Australia, the adjustment we have been experiencing for a couple of years now will most likely continue.
The terms of trade are still falling. The fall in mining investment spending will continue for at least one more year, though it is probably having its most significant effect on the rate of growth now.
Other areas of demand are expected to add to growth. The net effect of all this is likely to be continuing expansion at a moderate pace.
One key question will be whether the recent financial turbulence itself will have a material negative effect on aggregate demand – in Australia or abroad. I don't expect that we will be able to answer that question for a little while yet.
Another question is what the recent unexpected strength in the labour market means for the outlook.
If it turns out that the strength is just temporary, then the outlook is still for moderate growth, but no near-term acceleration.
If, on the other hand, recent trends were to continue, the income gains coming from higher employment may start to feed into stronger demand growth, which would probably lead in due course to higher levels of investment.
Alternatively, if demand growth were to be in areas that require relatively little capital to support the labour employed, then the apparent weakness in capital spending outside mining could be of less concern anyway.
As usual, there are many questions regarding both our current circumstances and the outlook.
At its recent meetings, the Reserve Bank Board has kept the stance of policy unchanged, with the cash rate at 2.0 per cent.
We will be examining new information over the months ahead as we try to discern the answers to these and other questions.
With inflation unlikely to cause a problem by being too high over the next year or two, the statement after the recent meeting indicated that the Board retains the flexibility to ease further, should that be helpful.
Glenn Stevens talked about Sydney and Melbourne prices in our next story here.
</body></html>

po-LsXgBTHBmX

Inflation unlikely to cause a problem: RBA governor Glenn Stevens opening statement

<html><body>
The Australian Bureau of Statistics (ABS) released its quarterly Consumer Price Index (CPI) data for the December 2015 quarter.
The data showed that inflationary pressures remain very low with headline inflation rising 1.7% over the year and core inflation (underlying inflation) increasing by 2.0% over the past year, which is right at the lower end of the Reserve Bank’s (RBA) target range for inflation of 2% to 3%. Of course across most developed nations there are very few inflationary pressures currently despite record low interest rates.
As a follower of the residential housing market I always like to have a look at the impact of inflation on Australian capital city home values by adjusting the CoreLogic RP Data Home Value Index for the impact of inflation. 
As you’d expect with inflation so low it is having minimal impact however, over the longer term it has had an impact on the real increase in capital city home values.
<a href="/images/2016/01/29/Chart-1-2-580x209.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/29/Chart-1-2-580x209.jpg" alt="">
With nominal home values increasing by 7.8% in 2015 across the combined capitals, when adjusted for inflation growth is somewhat lower at 6.0% over the year.  In terms of the individual capital city performances the four cities which recorded nominal value increases have still seen values rise in real terms albeit the rate of growth is lower.  Alternatively, the cities which recorded value falls have seen larger value falls in real terms.
<a href="/images/2016/01/29/Chart-2-2-580x206.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/29/Chart-2-2-580x206.jpg" alt="">
The trends across the capital city housing markets have shifted substantially since the financial crisis after home values declined during 2008.  Since the financial crisis home value growth has surged in Sydney and Melbourne, while elsewhere the rate of value growth has generally been comparatively modest. 
The chart above shows nominal and real home value changes over the seven years from December 2008 to December 2015.  While Hobart was the only capital city to record a nominal value fall over that time, in real terms values are lower over the past seven years in Brisbane, Adelaide and Perth while they have barely moved in Darwin and Canberra.
<a href="/images/2016/01/29/Chart-3-1-580x210.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/29/Chart-3-1-580x210.jpg" alt="">
To further highlight the previous point, the above chart shows the change in real home values across each capital city since their previous cyclical peak.  Sydney and Melbourne are the only two capital cities in which home values are higher than their previous peak. 
After Sydney home values hit a previous peak in March 2004 they are currently 21.1%, in Melbourne home values peaked in September 2010 and are currently 6.5% higher.  Elsewhere home values are -11.0% lower than the March 2008 peak in Brisbane, -9.8% lower than their June 2010 peak in Adelaide, -13.5% lower than their September 2007 peak in Perth, -21.8%  lower than their December 2007 peak in Hobart, -19.3% lower than their September 2010 peak in Darwin, and -8.5% lower than their June 2010 peak in Canberra. 
Despite historic low mortgage rates over recent years, home value growth in real terms over recent years has been soft.
Of course most people don’t think about the ‘real’ growth in home values, we tend to operate in a nominal world.  We see the value of our assets rising and we are generally quite happy with that however, it is important to at times consider the impact of inflation and if our asset values are rising at a faster pace than prices more broadly.
The data shows that even with historic low mortgage rates, real home value growth has failed to show any substantial or sustainable pick-up outside of Sydney and Melbourne.
This suggests that other economic factors are impacting on demand for housing. Furthermore, the drivers of housing demand in Sydney and Melbourne are somewhat different to the rest of the country. Some suggestions as to what these factors are would be the rise in demand from overseas purchasers, greater demand due to better jobs growth and employment prospects as well as the fact that these cities already have more than 4 million people compared to our next largest city at around 2 million people.
The much higher population results in substantially more housing demand than elsewhere in the country.
 
Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/about/" target="_blank">here</a>.
</body></html>

ckusher-ujnxiKuFQs

Sydney and Melbourne are the only capital cities with any significant increase after inflation: Cameron Kusher

<html><body>
GUEST OBSERVER
Yesterday's Q4 CPI numbers showed the RBA's preferred measures of underlying inflation are at the bottom edge of the 2-3% target band. The trimmed mean was 2.1% y-o-y (market had 2.1%), while the weighted median was 1.9% y-o-y (market had 2.1%) and the average of the two was running at 2.0% y-o-y. These numbers were in line with the RBA's own forecast for Q4 from its November official statement.
Importantly, the RBA also remains more focused on the recent lift in jobs and activity indicators, so we expect them to be on hold next week. However, with inflation at the bottom edge of the target band and growth unlikely to be above trend this year, we think another cut is likely around mid-year (pencilled in for Q2).
Facts
The trimmed mean rose by 0.6% q-o-q in Q4 (market had 0.5%) and by 2.1% y-o-y (in line) while the weighted median was up 0.5% (in line) and 1.9% y-o-y (market had 2.1%). The CPI excluding 'volatile items' was up 2.1% y-o-y in Q4, which was unchanged from last quarter.
CPI inflation was 0.4% q-o-q and 1.7% y-o-y (market expected 1.6%).
Tradable inflation was 0.5% q-o-q and 0.8% y-o-y (up from -0.3% previously). Non-tradable inflation was 0.4% q-o-q and 2.3% y-o-y (down from 2.6% previously).
The largest positive contributions to inflation in the quarter were from alcohol and tobacco (up 2.7% q-o-q, driven by an increase in tobacco excise) and recreation and culture (up 1.6% q-o-q, driven by higher prices for domestic and international holidays).
The largest negative contributors in the quarter were transport (-1.4% q-o-q due to lower petrol prices) and communications (-2.4% q-o-q due to falling prices for telecommunication equipment and services).
Implications
Underlying inflation this low is usually a recipe for an RBA cash rate cut. But not this time: or at least not yet. Late last year, the RBA Governor, Glenn Stevens, made it clear that the RBA was prepared to be more tolerant of low inflation, for a number of reasons, including: that low inflation is a global force, so the RBA may not be able to do much about it; that the RBA already has its cash rate at a record low of 2.00%; and, that the RBA sees risks to financial stability if it cuts further and were to drive an additional lift in housing prices.
Importantly, for the moment, the RBA can afford to tolerate low inflation because the jobs and activity indicators have been lifting. The unemployment rate fell to a two-year low of 5.8% in December and a key survey also shows that business conditions have been around 7-year highs recently (albeit falling back a little in the December print). While the labour market and activity surveys are still holding up, the RBA is unlikely to cut rates. This pretty much rules out a cut next week.
However, as today's CPI numbers confirm, underlying inflation is no constraint on the RBA's scope to cut rates, if they deem it necessary and useful for supporting growth. At the same time, we expect growth to remain a bit below trend this year and recent global developments, particularly in China, suggest the risks to the growth outlook are tilted to the downside. 
A fourth year of below trend growth is expected to continue to weigh on the outlook for Australian inflation. The recent fall in oil prices is also a clear downside risk to the inflation outlook. In short, we do not see enough growth momentum to get inflation back to the mid-point of the target band this year.
What will trigger the RBA to move?
In our view, some pullback from the strong pace of jobs growth or the high level of business conditions, combined with a continued cooling of the Sydney and Melbourne housing markets may be enough to convince the RBA that another cut may be needed. 
Of course, a further fall in the AUD, perhaps to US60-65 cents, could do the work for them, but the currency does seem to be quite sticky around the US70 cent level.
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%202.43.19%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%202.43.19%20PM.png" alt="" width="705" height="320">
 
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%202.44.53%20PM.png">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%202.44.53%20PM.png" alt="" width="825" height="369">
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>.
</body></html>

Inflation is low, but unsurprisingly so: HSBC's Paul Bloxham

<html><body>
GUEST OBSERVER
RBA Governor Glenn Stevens spoke at an Australian Business Economists dinner and offered a long term look of the big forces, many of them negative, impacting the economic outlook.
When asked about the short term policy outlook, and particularly the February RBA board meeting, Stevens said we should just "chill out" over Christmas and "come back and see what the data say".
Stevens' speech was less positive than the "glass half full" varieties that had been given as recently as 13 October by Deputy Governor Philip Lowe. But his comments were in line with the recent Statement on Monetary Policy in which the RBA's growth and inflation forecasts were lowered.
Crucial to the RBA over the holiday period will be the outcome of the US central bank policy meeting on 16-17 December, the next two Australian labour force reports and the December quarter CPI due on 27 January.
Subject to surprises from those events (especially a continuation of strong employment growth) we maintain our view that in 2016, the Australian economy will be less assisted by 2015's tailwinds. The stimulus from housing and the lower AUD will fade. We also think consumption growth is unlikely to be as strong as the RBA currently forecasts. 
We think the inflation outlook provides no impediment to lower rates. And so, we expect the RBA will implement more cuts. As Stevens said tonight, if growth can be dialled-up to wind-in the economy's spare capacity and "make things better", further rate cuts are appropriate. We maintain our view that cash rate will be cut twice by 25bps, most likely in February and May.
Governor Stevens' speech followed an address by Deputy Secretary of the Treasury, Nigel Ray today at the same conference who said that updated population and labour force trends would cause Treasury to downgrade the economy's potential growth. "We now think potential GDP will grow by around 2¾% over the next few years, lower than the 3% estimated at Budget."
This theme was also touched upon by Stevens who reiterated the known weight of the demographic change, but also noted costs such "as the problems of providing retirement incomes" because low yields on fixed income assets mean that it is expensive to purchase a secure stream of future income. He said "this may mean that Australian listed corporates feel the pressure from shareholders to deliver that, even some whose earnings are inherently volatile". 
Stevens also pointed to demographic changes in China, which "are not favourable" as China's total working-age population will shrink over the years ahead. He contrasted this with India where the working age population will exceed China's within a decade.
Other influences on growth highlighted by Stevens were;
The closing chapters of the terms of trade event.
Households no longer being able to lead growth by increasing leverage.
The global legacy effects of debt, after a period of over-confidence and under-appreciation of risk.
A disinflationary or deflationary environment for goods and commodities, and even some services, accompanied by unusually low rates of wages growth.
Extremely low returns on safe financial assets.
High and rising valuations on existing fixed assets.
 
Cherelle Murphy is co-head of Australian Economics, ANZ and can be contacted <a href="https://bluenotes.anz.com/authors/our-economists/" target="_blank">here</a>.
</body></html>

RBA's Stevens and Treasury's Ray Sombre update on "Big Forces": Cherelle Murphy

<html><body>
<div>Delving into the detail behind the Consumer Price Index figures for the third quarter reveals that annual rental price growth in Australia is now tracking at its lowest level since June 1995, with rents up nationally by just +1.5% over the year to September 2015.</div>
<div> </div>
<div>The data series captured at the capital city level shows the cylical nature of property prices and rents.</div>
<div> </div>
<div>The national level figures show the marked contrast beteween rental price inflation in periods when investors and housing starts were knocked out of the market (1985-1987) and those where investors have flooded the market with rentals and construction has boomed (2012-date).</div>
<div> </div>
<div><a href="/images/2015/10/30/Rents1.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/10/30/Rents1.jpg" alt=""></div>
<div> </div>
<div>
Naturally significant variances are evident across the capital cities. <div>Annual rental growth remained steady in Sydney (+2.5 per cent), but was softer in Melbourne (+2.2 per cent) and Brisbane (+1.1 per cent), while Perth has now slipped into negative territory on this series (-1.6 per cent) after a big run-up through the resources boom. </div>
<div> </div>
<div><a href="/images/2015/10/30/Rents4.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/10/30/Rents4.jpg" alt=""></div>
<div> </div>
<div>Looking at the annualised data reveals the softening trend, particularly in Perth.</div>
<div> </div>
<div><a href="/images/2015/10/30/Rents2.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/10/30/Rents2.jpg" alt=""></div>
<div> </div>
<div> </div>
<div>
In the smaller capital cities, Hobart appears likely to play host to a level of rental growth over the year ahead with vacancy rates in the Tasmanian capital having tightened sharply. On the other hand Darwin has the opposite problem and has now sunk into negative territory, joining Canberra where annual rents have been negative since the first quarter of calendar year 2014.
</div>
<div> </div>
<div>Click to enlarge</div>
<div><img src="/images/2015/10/30/Rents3.jpg" alt=""></div>
<div> </div>
<div> </div>
<div>Finally, a look at rental growth across 5 and 10 year time periods by capital city shows how the resources capitals enjoyed the bulk of rental growth until the end of the resources boom.</div>
<div> </div>
<div><a href="/images/2015/10/30/Rents5.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/10/30/Rents5.jpg" alt=""></div>
<div> </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>
</div>
</body></html>

pwargent-M4siyDbqQY

Rental inflation soft: Pete Wargent

<html><body>
The Australian Bureau of Statistics (ABS) released quarterly Consumer Price Index data for September 2015. The data showed that headline inflation was recorded at 0.5% for the quarter and was 1.5% higher over the year.
<a href="/images/2015/10/28/Chart-14.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-14.jpg" alt="">
 
As the above chart shows, at 1.5%, headline inflation is below the Reserve Bank’s target range of between 2.0% and 3.0% per annum.  While the headline figure is important, the RBA also likes to look at measures of underlying inflation which exclude some of the more volatile items.  Both measures of underlying inflation; the trimmed mean and the weighted median were recorded at a lower 0.3% over the quarter and have increased by 2.1% and 2.2% respectively over the past year.  These annual increases place underlying inflation within the lower band of the RBA’s target range, it would also indicate that if the RBA felt it necessary they have scope to reduce official interest rates.
<a href="/images/2015/10/28/Chart-23.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-23.jpg" alt="">
The effects of inflation are also an important factor to consider for housing markets.  Although we generally talk about home value growth in nominal terms, real or inflation-adjusted home value changes are also important to consider.  Over the 12 months to September 2015, combined capital city home values have increased by a nominal rate of 11.0% however, in real terms that figure drops to 9.4%.  The above chart shows the annual rate of value change across the individual capital cities in both nominal and real terms.  It highlights once again the significant difference in value growth conditions in Sydney and Melbourne relative to the other capital cities.
<a href="/images/2015/10/28/Chart-32.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-32.jpg" alt="">
 
In real terms home values have only increased over the past five years in Sydney and Melbourne.  On a compound annual basis, falls have been recorded at -1.7%pa in Brisbane, -2.0%pa in Adelaide, -1.5%pa in Perth, -3.5%pa in Hobart, -3.9%pa in Darwin and -1.4%pa in Canberra.  Real home values have increased at a rate of 4.9%pa over the past five years in Sydney and 1.7%pa in Melbourne.  Over the past decade, real home values have fallen in Hobart and have risen at a rate of less than 2%pa in Brisbane, Adelaide and Canberra.
<a href="/images/2015/10/28/Chart-4.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-4.jpg" alt="">
 
To further highlight the differences across the cities it is valuable to have a look at nominal and real value growth across the capital cities since 2008.  Between March and December of 2008 combined capital city home values fell by a nominal -6.1% or a real -8.3%.  On the back of aggressive interest rate cuts and stimulus in the form of the Boost to the First Home Owners Grant, values began to rise from that point.  Although combined capital city home values have increased since 2008, this is largely by virtue of strong value growth in Sydney and Melbourne.  In fact, real home values are currently lower in Brisbane (-5.2%), Adelaide (-5.4%), Perth (-3.0%) and Hobart (-16.1%) than they were at the end of 2008, almost eight years of no real value growth in these cities.  Real value rises have been moderate since 2008 in Darwin (5.0%) and Canberra (4.1%) and substantially greater in Sydney (51.4%) and Melbourne (41.9%).
<a href="/images/2015/10/28/Chart-5.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/28/Chart-5.jpg" alt="">
The above chart looks at the change in real home values on a quarterly basis since their previous peak.  What is immediately noticeable is that Sydney (+24.3%) and Melbourne (+8.9%) are the only cities in which values are now higher than their previous peaks.  The journey to get back above their peaks was somewhat different, Sydney took 41 quarters to eclipse its March 2004 peak while Melbourne took 19 quarters to eclipse its September 2010 peak.  Across each remaining capital city, real home values are below their previous peaks, the figures for each city are: -11.8% in Brisbane, -10.0% in Adelaide, -13.0% in Perth, -21.3% in Hobart, -17.9% in Darwin and -8.1% in Canberra.  For Brisbane, Perth and Hobart in particular the journey back to the previous peak has proven to be long with these markets previously peaking in March 2008, September 2007 and December 2007 respectively.
As values continue to rise in Sydney and Melbourne and show falls or moderate nominal growth in other capital cities, the affordability gap will continue to widen.  At some point these other capital city markets will once again become attractive to buyers.  Importantly this won’t be driven by affordability factors alone; employment opportunities, amenity and local infrastructure, amongst other factors, will be important factors.  The data also highlights that long periods of value falls do happen in the Australian housing market and clearly housing is not a one-way bet.  The broader statistics do tend to be overshadowed by the impact of the Sydney and Melbourne housing markets who are substantially bigger than all other capital cities.
 
Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/author/cameron-kusher/" target="_blank">here</a>.
</body></html>

Real home values remain below previous peak: Cameron Kusher

<html><body><div class="page" title="Page 1">
<div class="section">
<div class="layoutArea">
<div class="column">
GUEST OBSERVER
 The headline CPI lifted 0.7% in Q2 compared to the market’s expectation for 0.8%. The annual rate was 1.5%yr. Despite a downside surprise on food, the CPI came broadly in line with expectations as housing continued to underpin modest outcomes for core and non-tradeable inflation.
The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.5%qtr right on Westpac’s estimate. In the quarter, the trimmed mean gained 0.56% while the weighted median lifted 0.51%. The annual pace of the average of the core inflation measures is now 2.3%yr, a slight moderation from the 2.4%yr pace of Q1. 
In Q2 petrol prices surged (12.2%qtr), but the big surprise was the soft print on food, –0.2%qtr, in part due to a –1.2% for fresh fruit &amp; vegetables. Also surprising on the downside was a –3.5% fall in holiday travel. Clothing &amp; footwear was as expected at 1.3%qtr. 
Housing costs continue to underpin both core and non-tradeable inflation, rising 0.7%qtr, driven by a solid 1.5% gain in dwelling purchase prices. To this was added solid gains in hospital &amp; medical services (3.4%qtr) and alcohol &amp; tobacco (1.2%qtr). The modest offsets came from pharmaceuticals (–1.8%qtr), audio visual &amp; computing services (–1.6%qtr) and communications (–0.6%qtr). 
<a href="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%208.54.43%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%208.54.43%20AM.png" alt="">
<div class="page" title="Page 2">
<div class="section">
<div class="layoutArea">
<div class="column">
The September quarter has many ‘unknowns’ (as always). 
For the September quarter we have identified three large forces pushing the CPI in one direction with few significant offsets. But, as always, a large number of unknowns remain. We don’t have access to a lot of the data the ABS uses and, in many cases, it is not possible to replicate the survey process the ABS uses causing many small errors along the way.
<a href="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%208.56.40%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%208.56.40%20AM.png" alt="">
 
Automotive fuels are a modest negative. 
One of the most obvious events in the last few quarters has been the extreme volatility in the pump price of automotive fuels. From a peak at the start of the quarter of $1.42/l, the pump price fell to a low of $1.27/t before ending the quarter around that level. In terms of the quarterly averages, we forecast that the price of automotive fuels will fall 2.4% in the quarter producing a very small —0.09ppt drag on the CPI. Fuel is the most significant negative we have found for the September quarter CPI. All others are estimated to be individually worth –0.03ppts or less for the CPI. 
A number of meaningful positives are setting the foundations ... 
The most significant positives in the September quarter are fresh fruit &amp; vegetables (+0.10ppts), the indexing of the tobacco excise to the CPI (+0.08ppts), new dwelling purchases (+0.11ppts), household contents (0.11ppts) and holiday travel (0.21ppts). 
... such as fresh fruit &amp; vegetables ... 
The wholesale price of vegetables rose 1.2% in Q3 following a solid 1.8% in Q2. For Q3 we have pencilled in a small 0.5% rise in the CPI measure of vegetable prices; they fell 1.7% in Q2 and we suspect the larger than usual seasonal fall in potato prices may have had a role to play. Nevertheless, we can’t be sure how movements in the wholesale price have been passed on at the retail level. 
Wholesale fruit prices jumped 7.2% in Q3 following a 25.2% surge in Q2. Despite this, fruit prices in the CPI fell 0.7% in Q2 so we are expecting some residual catch to appear in Q3, but are cognisant that increased competition in the supermarket sector may limit this, hence our forecast for just a 6.0% increase in CPI fruit prices in Q3. 
All together, we are forecasting fruit &amp; vegetable prices to rise 3.5%qtr contributing 0.10ppts to the CPI. 
... tobacco excise re-indexing ... 
In the month of September the tobacco excise is indexed to the annual increase in the CPI to the June quarter. This means that one third of the increase appears in the September quarter and two thirds in the December quarter. For the September quarter we estimate that this re-indexing, along with normal seasonal retail price increases, lifted tobacco prices by 2.6% and is worth 0.06ppts for the CPI. 
... dwelling price gains in NSW &amp; Vic ... 
Dwelling prices can be very volatile from capital city to capital city and quarter to quarter. Melbourne dwelling prices have been particularly volatile of late, rising 0.8%qtr in the December quarter, falling 0.1%qtr in the March quarter then rising 2.0% in the June quarter. By comparison, Sydney prices have been trending higher and rose 2.4% in the June quarter. In the June quarter, dwelling prices rose 1.5%qtr, the strongest rise in dwelling prices since the 1.6%qtr print in June 2014. Westpac is expecting some moderation from Melbourne and Brisbane, which will see dwelling prices rise 1.3% in September quarter contributing 0.11ppts. 
<a href="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%208.57.53%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%208.57.53%20AM.png" alt="">
 
<div class="page" title="Page 3">
<div class="section">
<div class="layoutArea">
<div class="column">
... and housing overall making a positive contribution. 
For housing costs there is a small offset from the fall in electricity prices, we estimate around –4.0%qtr on average across the country, as regulated electricity prices fall. This is worth –0.08ppts on the CPI. Other housing components such as rents, other housing costs and non-electricity utilities, are set to continue to rise, resulting in a 0.9%qtr lift in total housing costs, contributing 0.20ppts for the CPI. 
We are also looking for a very modest AUD depreciation boost to the usual seasonal Q3 rise in household contents and services. Our forecast 1.2%qtr rise follows on from a 1.0% rise in the June quarter and will contribute 0.11ppts to the Q3 CPI. 
The Q2 fall in holiday travel costs will be reversed in Q3 
Holiday travel surprised in the June quarter falling 3.5% due to a –5.4% print from domestic holiday travel. The BITRE (Bureau of Infrastructure, Transport &amp; Regional Economics) data on the best price economy airfares was pointing to a flat print in Q2 followed by a large fall in Q3; but as you can see in the chart, the timing when the BITRE data price moves and when it appears in the CPI appears to have shortened. As such, we are looking for a 2% bounce in domestic holiday costs, which will add to the 7.2% rise in international holidays. The rise in international holidays is due to both seasonal factors and a trickle through impact of the depreciation of the AUD.
<a href="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%209.00.05%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/21/Screen%20Shot%202015-10-21%20at%209.00.05%20AM.png" alt="">
Overall seasonality is a reasonable positive in Q3 
Using the ABS’s seasonal factors, the seasonally adjusted CPI rises 0.6%qtr compared to our headline forecast of 0.8%. There is an important caveat however; the ABS conducts concurrent seasonal re-analysis, and the revisions to the seasonal factors can sometimes be quite significant. As such, we caution that we can’t be sure what the ABS will estimate as the seasonal impact in Q3. This matters as the components of the CPI are seasonally adjusted before they are trimmed for the core measures. As such, revisions to the seasonal factors can impact the historical estimates of core inflation. 
Core inflation to remain within the band 
Westpac is forecasting the average of the core measures to rise 0.5% in Q3, lifting the annual pace to 2.4%yr from 2.3%yr in Q2. More importantly, the six month annualise pace of core inflation is forecast to drop to 2.1%yr in Q3, from 2.5%yr in Q2 and a recent peak of 2.8%yr in Q1. 
Traded goods &amp; services are forecast to rise 0.8%qtr, lifting the annual pace to 0.2%yr from –0.3%yr; non-traded prices are also forecast to rise 0.8%qtr, but this takes the annual pace to 3.0%yr from 2.6%yr. Domestic, non-traded prices remain the key source of inflationary pressures, with housing and recreation remaining the key factors in the quarter. 
Conclusion 
A solid Q3 headline print is due to rising fresh fruit and vegetable prices, the re-indexing of tobacco excise and a bounce in holiday travel costs which add persistent gains in housing. While this is keeping inflation ticking along, the annual pace remains below the band and the six month annualised pace for the core measure is forecast to ease back to the bottom of the band. On balance, Australia does not face the risk of an inflation breakout nor the commencement of a significant disinflationary impulse. Inflation remains neutral for monetary policy.
 
 
Justin Smirk is senior economist, Westpac, and can be contacted <a href="https://www.westpac.com.au" target="_blank">here</a>.
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div></body></html>

Inflation

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Inflation

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News