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Hedge Clippings | Friday, 04 November 2022
Last week's Hedge Clippings left the subject of Jim Chalmers and his first budget well alone, probably because at first sight there didn't seem to be much to it. Apart from flagging that inflation was an issue, that energy prices were rising, it left the hard decisions to be made in next year's May budget. It seemed to us that for the time being the government was keen to deliver on some core deliverables while making sure they didn't break the core promises made during the election campaign, and in doing so frighten the punters - aside of course from the promise to deliver lower energy prices. As such, Chalmers kicked the can down the road to the May budget, while at the same time softening us up for the fact that times are going to get tougher, and that inflation was "the number one scourge" while there wasn't much he's going to be able to do about it. The fact is that inflation both here and abroad shows no sign of easing - in fact, the opposite, particularly given the lagging effect of floods - and in spite of the efforts of central banks to try to curb it. As such, this week's rate hike came as little surprise, and the RBA's increase of 0.25% seemed almost insignificant compared with the US Fed's 0.75%, with the same from the Bank of England. One thing seems certain - the outlook for inflation is deteriorating, at the same time as its duration is extending. Inevitably interest rates will keep rising until the inflation trend reverses, and in the interim - however long that may end up being - the potential for a recession, particularly in the US, and the UK - keeps rising in line with the interest rates. If we cast our minds back to just 12 months ago, the RBA wasn't expecting inflation (and interest rates) to be where they are today. Now they're forecasting inflation of 8% this year, before falling back to around the 3% mark in 2024. The problem is that their past forecasting record is not too good, so while we hope they're right, we suspect they'll be found to be wrong. |
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Magellan Infrastructure Strategy Update | Magellan Asset Management The storm of inflation | Kardinia Capital |
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