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Tim Hext: Higher inflation isn’t guaranteed, but insurance remains cheap
COST OF LIVING pressures are creeping in, with more to come.
I’ve lost track of how many politicians have promised to “ease the squeeze”, but with an election early next year it’s probably getting dusted off.
So far the official data is not fully reflecting this, although food and fuel prices should see another healthy headline inflation number for Q3 when released in late October.
All this has happened with subdued demand.
As mentioned many times over the past 18 months this has been — and remains for now — supply led.
However talk of transitory is misleading — unless three years is now considered transitory.
When NSW reopens shortly, high savings and incomes should see a surge in demand, pushing prices higher again.
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Supply will be slower to come back, partly mandated (eg restaurant dining numbers) and partly due to businesses having closed.
Good luck finding a restaurant booking in December. I would imagine proprietors take advantage of this with pricing. Who would blame them after the last 18 months ?
After a subdued September, due to a rare fall in risk assets, market inflation expectations are returning this month, once again nudging 2%. We expect to see 2.5% by year end.
Wagse remains the missing piece for medium-term inflation.
Everyone is reporting worker shortages but so far companies are looking to short-term measures to attract and keep staff — a sign-on bonus here, flexible conditions there.
However the dam wall of ten years of low wage growth is at risk of bursting.
I know if I worked in affected industries — from healthcare to construction to hospitality — I’d be taking advantage of a sellers (workers) market for labour. A recent increase in strike action suggests this realisation is dawning.
At risk of sounding like a broken record, higher inflation is not guaranteed, but insurance remains cheap.
About Tim Hext and Pendal’s Income & Fixed Interest boutique
Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.
Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at October 6, 2021.
An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.
This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation.
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Any projections contained in this article are predictive and should not be relied upon when making an investment decision or recommendation. While we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.
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