Tim Hannon

Central banks want prices to rise consistently and with low volatility, normally in a range of 2 to 3% per annum. Prices growing at greater than 3% per annum apparently signal capacity constraints in an economy, so the central bank raises interest rates to crimp consumer spending and investment - giving the economy the chance to build extra industrial output. Conversely, price growth below 2% purportedly signals economic weakness, and by a central bank lowering interest rates it tries to encourage consumer and business spending to bolster economic growth. We do not think a further reduction in interest rates will change many of the underlying trends in CPI. We expect interest rate cuts may simply lead to higher real estate prices. This isn’t necessarily a positive for the economy, given record prices for these assets already in place. If there were going to be a positive transmission into the Australian economy from higher real estate prices, it would be working by now. Full report attached. Please visit (VIEW LINK)


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