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Climbing Commodity Prices Expected to Inflate Further as Russia’s Invasion of Ukraine Continues

As the nation attempts to continue to recover from the devastating impacts of the COVID-19 pandemic, our global economy continues to be impacted by a range of factors.

If you’ve needed to top up on groceries, fill up with petrol, or have had a close eye on the property market anytime in the past few weeks, it’s likely that you’ve noticed the dramatic increase in the prices of our everyday items. 

Governor of The Reserve Bank of Australia, Philip Lowe, has commented that while the global economy continues to recover from the significant impacts of the pandemic, the prices of many commodities today have increased further as a result of:

  • The war in Ukraine 
  • Large increases in energy prices 
  • Disruptions to supply chains 

With many curious Australians watching how these changes will impact inflation, Managing Director of BlueRock Finance, Jamie King, takes a deep-dive into the impacts inflation will have on the property market and our cash rates.  

What Effects Will the Rising Interest Rates Have on the Property Market? 

As inflation rates continue to hinder global economic recovery from COVID-19, the cost of living isn’t the only thing impacting Australians today – with the cost of our national housing prices still expected to rise throughout the course of this year.

PropTrack senior economist, Eleanor Creagh, states that while “we are certainly getting closer to the housing price peak”, it’s important to note that the RBA is waiting to raise the cash rate until there is a sustained pick up in wage growth, which will also help to soften the blow of the mortgage rate increase. Creagh has also noted that evidence shows the steep growth of Australian house prices is finally beginning to slow down, with high-prospective demand of buyers set to lessen significantly.  

Despite significant rain and flooding across Queensland and NSW, Ray White positively reported a 92.2% active bidding rate on Brisbane auctions, with 77.9% of the buyers being owner-occupiers. In preparation for the expected rise in our cash rate, David Zammit, National Sales Director of Mortgage Choice, has revealed that lenders nation-wide have begun increasing their fixed rates to encourage borrowers away from this type of home loan product, with variable home loan rates appearing to be a much more attractive option for the time being. 

How Will Wage Growth Impact the Future Cash Rates? 

Despite wage growth falling for the first time since 2014, recent data gathered from the Australian Bureau of Statistics (ABS) has shown that Australian wages still rose by 0.7% from September-December 2021, with an annual growth rate of 2.3%. With unemployment now sitting at 4.2%, its lowest rate since 2008, the RBA is continuing to work towards its mandate of full employment. The RBA’s central forecast predicts that the unemployment rate will fall to below 4% later this year, and will remain under 4% in 2023.

Despite our record-low unemployment rates, Mr Zammit commented that “the wage price index revealed a modest growth in the December 2021 quarter, but not enough to prompt the RBA to bring forward a rate increase.”  Bluestone economist, Andrew Wilson, also spoke on his predictions for the imminent RBA rate rises, suggesting that with real wages growth falling for the first time since 2014, and the clear prospect of further declines through higher inflation, the last thing our recovering economy needs is higher interest rates. 

How Have Current Global Events Influenced the Cash Rate in Australia?

Managing Director of Finsure, John Kolenda has stated that although forecasting initially suggested that the RBA would be lifting the current cash rate of 0.1% by the middle of 2022, the war in Ukraine coupled with the devastating impacts of the flooding in Queensland and NSW has “shocked the world and moved the goalposts for the RBA which had been navigating its way through the COVID-19 pandemic”. 

Our soaring petrol prices and the increasing cost of everyday items in Australia will continue to contribute to our higher inflation rates in the coming months. However, the heightened demand for these products may mean that interest rates won’t need to be increased as drastically in order to keep inflation under control. 

What are the Impacts on the Australian Construction Industry? 

Condev, a major Australian construction company that once completed $240million worth of projects annually, has gone into liquidation following a difficult battle with material costs, flooding in Queensland, and nation-wide labour shortages. 

After the Brisbane based company was unable to secure an essential $25million in funding from developers earlier this week, 125 tradies have lost their jobs, and 18 projects (valuing $1billion) remain uncompleted. Co-founder Tracey Marais stated that she “never dreamed the world would be affected by a coronavirus and price hikes that would put [them] out of business.” Thin profit margins coupled with industry disruptions, a global pandemic, and supply constraints have been named as contributing factors to the company’s downfall. 

Similarly, ProBuild was one of several construction businesses under the WBHO Australia Group that also went into administration last month. Melbourne-based business, ProBuild, was forced to enter voluntary administration after devastating global events caused the company to fall into millions of dollars in debt. This came after the WBHO Australia’s parent company, WBHO South Africa, opted out of providing the company with further financial support. 

For further support in understanding these unprecedented market conditions, and to secure better property outcomes, get in touch with our Melbourne finance brokers at BlueRock Finance for a free consultation today. 

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The origin of the BlueRock name is a mash-up of the founders two favourite things.
Through a mutual love of the Carlton football team and Dwayne 'The Rock' Johnson, a firm was born!