15 Apr 2024
Market Metrics: Inflation
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
Financial experts never seem to know what is going on right now but in hindsight they are perfect.
For example, the United States was forecast to go into recession in 2022 after the Russian invasion of Ukraine which resulted in supply shocks and rapid global interest rate rises but the United States did not fall into recession.
Again, the United States was forecast to have a recession in 2023 but it did not happen.
Why because no one had worked out that the insane printing of money by Governments during COVID-19 period had left consumers with excess savings. This excess has now been depleted expect for Australia.
Click for excess savings charts.
Our point is that financial experts almost never know what is going on in the present.
Markets have been forecasting (and are still forecasting) that inflation has peaked, that it will fall and consequently interest rates will be cut in 2024.
For goods inflation we agree however not for services inflation.
Wages increases are high and showing no signed of reduction in the short term which means that inflation (the sum of goods plus services) will remain high and that means no interest rate cuts in 2024. In fact, interest rates are more likely to increase in 2024.
Click for services inflation charts.
If correct and interest rates do increase in 2024 then it will again mean a correction/crash for assets prices.
What action does one take?
None, just follow Benjamin Graham’s value investing principles and remain invested according to your appetite for volatility and look to buy more quality assets when prices fall.
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At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.
